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Investors trim UW positions on China stocks despite US trade tiff - MS

Published 05/17/2024, 01:20 PM
© Reuters.
- Investors were seen reducing their underweight positions on Chinese stocks in recent weeks, Morgan Stanley analysts said in a note, although the outlook for the country remained bleak in the face of more U.S. trade restrictions. 

Chinese markets- specifically the benchmark Shanghai Shenzhen CSI 300 and Shanghai Composite indexes- saw a stellar rebound over the past two months, as optimism over more stimulus measures and improving economic conditions drew some degree of foreign buyers back into markets. 

But this rebound slowed in recent weeks, especially as the U.S. hiked trade tariffs on several key Chinese industries, such as electric vehicles, medicines and batteries. 

Recent economic readings from China also showed that a recovery may be losing steam after a strong first quarter.

Still, Morgan Stanley analysts said they saw investors- particularly U.S.-based global investors- covering underweight positions on Chinese markets, according to positioning data. 

Remain selective on China, MS says 

The brokerage recommended taking a more selective approach to China after a recent recovery in the market. 

Firstly, heavily sold-down bluechips presented value, especially the country’s major internet giants, such as Tencent Holdings Ltd (HK:0700). The firm recently clocked a bumper first quarter as strength in advertising offset softer videogame revenues. 

Secondly, MS analysts recommended keeping exposure to any potential beneficiaries from reforms in state-owned Chinese enterprises. China had recently instructed its major state-owned funds to  begin buying up more local shares, particularly in financials and property stocks. 

Thirdly, MS analysts said that sectors with potential for major global expansion also presented value in Chinese markets. Sectors such as electric vehicles and semiconductors could stand to benefit from expanding beyond the domestic market.

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