Hong Kong to outperform mainland stock markets, says Morgan Stanley

Morgan Stanley expects Hong Kong stocks to end 6 percent higher by the year-end and outperform mainland markets, amid active cost control and share buybacks by corporates and the rising tech sector.

The US investment bank lifted its year-end target of the Hang Seng Index to 24,000 points, 5.9 percent above the 22,660-point level around which the blue-chip indicator was at on Wednesday afternoon.

Morgan Stanley believes a structural regime shift is finally occurring within China's equity market, especially the offshore space, which would lead to a sustainable return on equity and valuation recovery, analysts including Laura Wang, chief China equity strategist, wrote in a note.

The drivers include diligent corporate self-help measures such as cost control and share buyback programs and the latest technology breakthroughs from Chinese firms, as Japan’s experience shows that tech-heavy firms can lead growth despite a challenging deflationary environment, Morgan Stanley said.

Last but not least, offshore Chinese stocks are expected to over time become less influenced by macro headwinds and deflation, it said.

Morgan Stanley left the mainland benchmark CSI300's 2025 year-end target unchanged at 4,200 points, because of the threat of deflation in the domestic market.

Overall, Morgan Stanley is now “cautiously more optimistic” about Chinese equities, after moving from “deeply skeptical.”

However, JP Morgan warned that Hong Kong-listed artificial intelligence-related stocks have been heavily overbought, including Alibaba (9988), Alibaba Health Information Technology (0241), Kuaishou (1024) and Tencent (0700). 

But it still believes AI can support corporate growth in the long term.  

STAFF REPORTER