China Equity Strategy: Forging New Horizons

Morgan Stanley maintains an Equal-weight rating on China, emphasizing exposure to global export champions in AI and Energy supply chains over broad index exposure. A-shares are favored over offshore listings due to their concentration in strategic manufacturing.

Key Takeaways

• 1.Maintain Equal-weight on China as MSCI China has underperformed EM YTD due to AI memory super-cycle headwinds.
• 2.Expect export resilience to anchor cyclical growth, benefiting from the global AI/Energy Capex super cycle.
• 3.Strong preference for A-shares over offshore Chinese equities due to concentration in high-end manufacturing and tech sectors.

Table of Contents

• MSCI China has underperformed Emerging Market YTD mainly due to AI memory super-cycle; We stay Equal-weight on China
• Index performance and Sharpe Ratio
• Underneath the lackluster performance
• China has implemented a systemic framework on industrial upgrade and innovation
• Evolution of recent Five-Year Plans
• Exports continue to anchor cyclical growth
• China has been widening its lead in global export since 2022
• Asia/EM/China 2Q 2027 index targets
• Morgan Stanley bull/base/bear case index target history
• Assessing Morgan Stanley's China framework
• Consensus earnings estimates for MSCI China and CSI300
• Downward earnings estimates revision pressure to peak out in 2Q and then improve
• MSCI China consensus EPS composition by industry group
• MSCI China index level earnings growth forecasts by industry
• We see stronger exports growth benefiting from global AI/Energy Capex super cycle
• Policy to stay on cruise control
• Tier-1 city property sales showing signs of improvement
• Recovery emerging in secondary property prices
• MSCI China trades at 11x 12-month forward P/E
• MSCI China vs. USDCNY
• US-China relationship
• Active weights of China/HK equities
• Foreign mutual fund flows strengthened further in 2026
• EM and China active managers' active exposure
• Top 50 China/HK holdings among long-only EM and China active managers
• Hong Kong IPO fund raising
• CSI 300 trades at 14.5x
• We stay OW on A-shares vs. offshore China
• Morgan Stanley A-share Sentiment Index
• Chinese A-share market foreign ownership
• Morgan Stanley top-down sector allocation for China market
• Key recommended trades for the next 6-12 months
• China Best Business Models
• Morgan Stanley Global Export Champion Stock List
• Morgan Stanley China/HK Focus List
• Morgan Stanley China A-share thematic stock list
• Appendix – Morgan Stanley cross-asset allocation and key forecasts

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