Morgan Stanley-China Equity Strategy A-Share Sentiment Rebounds Following ...-109593343

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China Equity Strategy | Asia Pacific

A-Share Sentiment Rebounds

Following Politburo Meeting



Laura Wang



 !"#$!!%&$# '())'*'+,'(-

Chloe Liu



./%$0"#$!!%&$# '())'*'+(*12

Catherine Chen



./!./!"#$!!%&$# '()-1,-+*0',

Exhibit 1 : +/!#!3!4&$

5367-,859/46:;00;;<=%)*

1500

2000

2500

3000

3500

4000

4500

5000

5500

6000

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-14

Jun-14

Nov-14

Apr-15

Sep-15

Feb-16

Jul-16

Dec-16

May-17

Oct-17

Mar-18

Aug-18

Jan-19

Jun-19

Nov-19

Apr-20

Sep-20

Feb-21

Jul-21

Dec-21

May-22

Oct-22

Mar-23

Aug-23

Jan-24

Jun-24

Nov-24

MSASI (Simple)

MSASI (Weighted)

MSASI (Simple) Current

MSASI (Weighted) Current

CSI300 (RHS)

75%

20%

48%

41%



 !"#$#%

Exhibit 2 : 3>&$!&=!0:)?01

2,800

3,200

3,600

4,000

4,400

4,800

5,200

5,600

6,000

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec-18

Feb-19

Apr-19

Jun-19

Aug-19

Oct-19

Dec-19

Feb-20

Apr-20

Jun-20

Aug-20

Oct-20

Dec-20

Feb-21

Apr-21

Jun-21

Aug-21

Oct-21

Dec-21

Feb-22

Apr-22

Jun-22

Aug-22

Oct-22

Dec-22

Feb-23

Apr-23

Jun-23

Aug-23

Oct-23

Dec-23

Feb-24

Apr-24

Jun-24

MSASI (Simple)

MSASI (Weighted)

MSASI (Simple) Current

MSASI (Weighted) Current

CSI 300 (RHS)

28%

36%

MSASI was launched on 11 March, 2019



 !"#$#%

Market sentiment has risen significantly with increased trading

volume. Despite some encouraging signals on policy fine-tuning

at the Politburo meeting, we remain relatively cautious given

uncertain implementation and rising geopolitical uncertainty.

Weighted and simple

MSASI increased to 48% and 41%, by 11ppt and 13ppt, respectively, vs. the prior cut-

off date (July 24). Turnover for ChiNext, A shares, Equity Futures and Northbound

increased by 40%, 44%, 26% and 29%, respectively, vs. the prior cut-off date (July

24). RSI-30D increased by 9ppts vs. the prior cut-off date (July 24). Consensus

earnings estimate revisions breadth remained negative, while the downward revision

momentum has slowed since late May 2024.

  !"#$%&'()*+!

 , '),,-,./Northbound

MTD net outflows were US$2.3bn, and YTD net inflows stood at US$3.2bn.

Meanwhile, Southbound net inflows were US$0.9bn during July 25-31, totaling MTD

net inflows at US$6.1bn and YTD net inflows at US$53.6bn, respectively.

0,%%% 

1%+2,,2

,: NBS manufacturing PMI slipped by 10bps to 49.4 in July and has stayed

<50 for 3 consecutive months. Morgan Stanley's Economics team expect PPI MoM

to dip further by 10bps to -0.3% in July, with incrementally increased deflationary

pressures. Despite the pace of policy easing accelerating modestly (marked by

10bps interest rate cuts and the allocation of Rmb300bn in long-term treasury

bonds to fund equipment upgrading and consumer goods trade-in), the overall

policy is still reactive in nature. Therefore, our Economics team still see 10-20bps

downside risk to our full-year real GDP forecast of 4.8%. Moreover, our China free

liquidity indicator dipped further in June, as the continuous slowdown in M1 YoY (-

5.0%, lowest since 2000) was the main drag behind the tighter index. We think

macro deterioration, geopolitical uncertainty and potential currency weakening are

still the main concerns regarding the China market. Morgan Stanley's Fixed Income

Strategist suggests staying cautious on CNY from now until November or January

(depending on the election result) and believes we should fade bearishness on CNY

in January/February 2025.

Continued in the following section.

Morgan Stanley does and seeks to do business with

companies covered in Morgan Stanley Research. As a result,

investors should be aware that the firm may have a conflict of

interest that could affect the objectivity of Morgan Stanley

Research. Investors should consider Morgan Stanley

Research as only a single factor in making their investment

decision.

For analyst certification and other important disclosures,

refer to the Disclosure Section, located at the end of this

report.

+= Analysts employed by non-U.S. affiliates are not registered

with FINRA, may not be associated persons of the member

and may not be subject to FINRA restrictions on

communications with a subject company, public appearances

and trading securities held by a research analyst account.

August 1, 2024 09:00 PM GMT



3,%% ,%%,,%2

% ,% 4,5We still

recommend 1) SOE reform beneficiaries, 2) high-quality dividend plays, and 3) "the China

Going Global" theme. These picks were designed to mitigate risks to trade and other

disputes amid rising geopolitical complexity. 3, 

 ,,,, 3

  , 1) Liquidity support from

government-affiliated funding ("National Team") to help set a floor when volatility rises;

and 2) A-share market tends to be much less sensitive to FX fluctuations and geopolitical

concerns than offshore, both of which we see potentially rising in the near term.



&'()*+)*,-.-/-)'01 3

MSASI Methodology

We monitor nine metrics on a regular basis to gauge onshore

sentiment level

MSASI was launched on March 13, 2019, and aims to provide a straightforward

quantitative measure to benchmark market sentiment levels. It is compiled based on nine

metrics that we monitor regularly, with the belief that they have a certain level of power

to indicate sentiment. For background information and methodology regarding MSASI, see

China Equity Strategy: Tracking A-share Market Sentiment and Technical Indicators –

Launching MSASI (12 Mar 2019).

*/0%,% Historical margin financing balance, scaled to 0-

100% based on its percentage away from its high and low levels since January 2014

(available daily; we use weekly ending balance for analytical purposes).

'/%Number of new investors registered per week, scaled to 0-

100% based on its percentage away from its high and low levels since January 2014

(available weekly).

)/607 Daily A-share turnover in RMB, scaled to 0-100% based on

the percentage away from its high and low levels since January 2014 (available daily; we

use weekly ending balance for analytical purposes).

8/9:607 Daily ChiNext turnover in RMB, scaled to 0-100% based on

the percentage away from its high and low levels since January 2014 (available daily; we

use weekly ending balance for analytical purposes).

(/%-%/Growth rate of Stock

Connect Northbound buy orders (period ending day RMB amount vs. three months ago),

scaled to 0-100% based on the percentage away from its high and low levels since January

2014 (available daily; we use weekly ending balance for analytical purposes).

;/<=: %-%/ Growth rate of A-

share index futures trading turnover (period ending day RMB amount vs. three months

ago), scaled to 0-100% based on the percentage away from its high and low levels since

January 2014 (available daily; we use weekly ending balance for analytical purposes).

$/6!>)#? Relative Strength Index based on the CSI 300 over a 30-day period. Original

data are scaled to 0-100% based on percentage away from high and low levels since

January 2014 (available daily; we use weekly ending balance for analytical purposes).

@/  Number of stocks that hit 10% price trade limit-up per

day, scaled to 0-100% based on the percentage away from its high and low levels since

January 2014 (available daily; we use weekly ending balance for analytical purposes).

A/<% based on Shanghai A Index owing to data

availability, scaled to 0-100% based on the percentage away from its high and low levels

since January 2014. It measures the number of sell-side stock analysts who raise their

earnings estimates vs. the number of analysts who lower their estimates. This metric is

more related to corporate fundamentals (available weekly).

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MChinaEquityStrategy|AsiaPacificA-ShareSentimentReboundsFollowingPolitburoMeetingLauraWang!"#$!!%&$#'())'*'+,'(-Chloe...

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