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SHANGHAI (Reuters) - Wall Street firm Morgan Stanley raised on Wednesday its index targets for Chinese shares for the second time this year, citing improved earnings growth forecasts and a more optimistic outlook for the economy and currency.
The bank upgraded its year-end index targets for Hong Kong's benchmark Hang Seng Index, Hang Seng China Enterprises index, MSCI China index, and China's blue-chip CSI300 index to 25,800, 9,500, 83, and 4,220 points, respectively.
"The new and higher index price targets are driven by both moderate increases in earnings growth forecasts and higher valuation targets," the U.S. bank said in a note.
It also cited "improved macro and FX outlook forecasts".
Morgan Stanley noted that earnings results for the fourth quarter of last year from companies tracked by the MSCI China index "are showing a solid 8% net beat", both in terms of the number of companies and weighted earnings – marking the first time in 3-1/2 years.
Chinese stocks have gained momentum this year, with the MSCI China Index rising about 16% so far, outperforming global peers. This rise is fuelled by investor optimism surrounding progress in generative AI and Beijing's stimulus measures aimed at boosting consumption and supporting the broader economy. [.SS]
Developments in trade relations between the United States and China have been a key focus for investors. The White House said last week that U.S. President Donald Trump still intends to impose new reciprocal tariffs on several U.S. trading partners, starting April 2.
Morgan Stanley also raised its forecast for China's economic growth in 2025 to 4.5%, up from the previous estimate of 4%. The brokerage revised its yuan predictions to 7.35 per dollar by mid-2025 and 7.50 by the end of this year, compared with its prior forecast of 7.50 and 7.60, respectively.
"We have always made the point that currency strength serves as an important factor for Chinese equities, especially for the offshore market.
"This is because foreign investors' funding costs are usually in U.S. dollar terms, which means a relatively stronger or less weak currency should be a positive catalyst from an asset allocation perspective."
Goldman Sachs shared a similar outlook, expecting "more fundamental upside for China stocks."
"However, we expect the bull market to slow and profit-taking pressures to build as the U.S.-China policy and geopolitical calendar turns active once again in the coming weeks," GS said in a note on Wednesday.
(Reporting by Shanghai Newsroom; Editing by Kate Mayberry and Sherry Jacob-Phillips)
