stock market Photo:VCG
A near-term positive catalyst has been identified for Chinese stock market, according to a research note sent to the Global Times by Morgan Stanley on Monday, as China and the US announced they have reached a deal to slash tariffs following two days of trade talks in Geneva during the weekend.
“We see this development as a solid near-term catalyst for the China market, as it will likely ease concerns about potential corporate earnings shock from the second quarter and on China’s equity risk premium, if current trade tensions were to persist,” Laura Wang, chief China equity strategist at Morgan Stanley, said in a statement sent to the Global Times on Monday.
The trade agreement should support near-term fund flows and improved capital allocation for China “for reasons including structural investment opportunities in tech/artificial intelligence and new consumption related areas,” Wang wrote.
The assessment from Morgan Stanley followed a report last week stating sentiment around Chinese A-shares had improved ahead of the China-US trade talks.
In another development, UBS Global Wealth Management issued its investment views on Monday, expressing preference for leading internet names driving AI development in China and attractive opportunities across the broader semiconductor supply chains.
“More broadly, we believe the continued breakthroughs in China’s AI space should help drive the tech sector higher amid signs of a potential de-escalation in the US-China trade war. We now rate China tech as Attractive, and expect the sector to post an earnings growth of 30% this year,” the wealth management firm said.
Last Thursday, Goldman Sachs strategists including Kinger Lau wrote in a note that they had raised their 12-month target for the MSCI China index to 78, implying 7-percent potential returns, while raising the CSI-300 target to 4,400, signaling 15 percent gain.
China and the US announced in a joint statement on Monday a series of tariff modification measures aimed at easing trade tensions between the world’s two largest economies, with both sides removing 91-percent of tariffs and implementing a 90-day pause on an additional 24-percent tariffs.
Chinese stocks closed higher on Monday, with the benchmark Shanghai Composite Index up 0.82 percent to close at 3,369.24 points. The Shenzhen Component Index closed 1.72 percent higher at 10,301.16 points. The ChiNext Index jumped 2.63 percent to close at 2,064.71 points.
And, both the US dollar and Chinese yuan rose following the trade agreement. The dollar gained against the pound, euro, and Japanese yen, while the yuan appreciated against all three, as well as the US dollar, the BBC reported.
On May 7, Wu Qing, chair of China’s top securities regulator China Securities Regulatory Commission (CSRC), noted that Chinese A-share firms, including leading enterprises in the country, have exhibited strong resilience and adaptability in the face of global volatilities.
With nearly 90 percent of their revenues coming from China’s domestic market, supported by China’s vast internal demand, “these companies have remained resilient,” Wu said. First-quarter data show that listed companies’ net profits rose by 3.6 percent year-on-year, Wu said.
China last week introduced a comprehensive package of monetary and fiscal policies to support its economy, ranging from cuts to the reserve requirement ratio and interest rates, to the creation of new policy tools; from increased credit support for service consumption and elderly care to a series of banking and insurance measures aimed at stabilizing foreign trade.
