Wall Street Brokers Become More Cautious About Chinese Stocks

Forex - Wall Street brokerages have become more cautious toward Chinese stocks due to ongoing deflationary pressures and geopolitical tensions overshadowing the earnings outlook for the world’s second-largest equity market. According to Bloomberg News, Morgan Stanley (NYSE:MS) strategists have reduced their overweight stance on Chinese stocks in the region, while Goldman Sachs Group Inc. has trimmed its index target on the MSCI China Index to reflect a less favorable macro backdrop.

The latest calls represent a swift reversal from their optimistic stance on the market following Beijing's stimulus push in September. The MSCI China Index has fallen nearly 15% from its recent peak as enthusiasm for greater government support has waned and concerns about higher tariffs on China following Donald Trump’s victory in the U.S. elections have intensified.

In a note written on Sunday, Morgan Stanley strategists, including Laura Wang, stated, "We see low and limited chances of the Chinese government front-loading sufficient fiscal stimulus to target consumption and housing by 2025 due to concerns over moral hazard and a premature transition to a 'welfare state'." The brokerage’s end-2025 target for the MSCI China Index is set at 63, slightly lower than Friday’s close of 63.93. In October, Morgan Stanley had reduced its underweight position on China, citing an improving policy outlook.

Meanwhile, Goldman has cut its target on the benchmark from 84 to 75. The firm retains an overweight position in Chinese stocks but noted that potential U.S. tariffs on China could lead to lower earnings growth. It had raised the market in October.