(Bloomberg) — Wall Street brokers have grown more cautious about Chinese stocks as persistent deflationary pressures and geopolitical tensions cloud earnings prospects in the world’s second-largest stock market.
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Morgan Stanley strategists have cut Chinese stocks to a slightly underweight position within the region, while Goldman Sachs Group Inc. has lowered its index target for the MSCI China Index to reflect a less favorable macro environment.
The latest calls represent a quick turnaround from their bullish stance on the market following Beijing’s stimulus blitz in September. The MSCI China Index is down about 15% from a recent peak as excitement over the prospect of more government aid fades and Donald Trump’s victory in the US election raises concerns about higher tariffs on China.
“We see a small, limited likelihood that the Chinese government will implement sufficient fiscal stimulus to target consumption and housing in 2025, due to concerns about moral hazard and a premature transition to a ‘welfare state,'” Morgan strategists wrote Stanley, including Laura Wang. A comment on Sunday. That will “create even stronger headwinds for corporate earnings and market valuation in the coming months.”
The brokerage’s end-2025 target for the MSCI China Index is 63, down slightly from Friday’s close of 63.93. In October, Morgan Stanley had reduced its underweight position in China, citing an improved policy outlook.
Meanwhile, Goldman lowered its target on the index to 75 from 84. While the firm remained overweight on Chinese stocks, the firm noted that potential U.S. tariffs on China could lead to lower earnings growth. It had upgraded the market in October.
Goldman also downgraded Hong Kong stocks to underweight due to weak real estate and retail sectors and less policy pass-through from China’s domestic easing.
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