Morgan Stanley strategists cautioned on Friday against purchasing Chinese stocks, as foreign investors continue their sell-off due to ongoing geopolitical tensions, economic difficulties, and China's unresolved housing crisis. The A-share market witnessed an unprecedented $22.1 billion outflow from August to October via Stock Connect, marking the largest in its history.
Despite efforts by President Xi Jinping to stabilize the property market and ward off deflation, the impacts have been minimal. Foreign investors are preparing for a third month of stock sales in Shanghai and Shenzhen. The Shanghai Composite Index has dropped below a key level, indicating that if foreign investors sell another $9.6 billion in shares, 2023 could be the first net sell year since the opening of trading links in 2016.
In light of these developments, Morgan Stanley previously emphasized the need for sustained recovery measures. This followed positive indications from a July Politburo meeting, suggesting that comprehensive strategies might be necessary to restore investor confidence.
Several upcoming events are expected to have significant implications for the market. These include the APEC Summit, where a potential meeting between US President Joe Biden and President Xi Jinping may take place, the Third Plenum, and the roll-out of market policy measures. These events could be pivotal in reestablishing investor confidence and potentially reversing the current downward trend in Chinese stocks.
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