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Needle Still Points South

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Yields Bounce as Equities Make New Monthly Highs

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Heading North

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Bull Rally Accelerates

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Economists Survey Raises 2021 CPI Forecast To 4.9%

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Morgan Stanley note that they have cut their "June '22 base case index targets for Chinese equities to 90 for MSCI China (-3% vs. 14 Sep '21 close), 5,100 for the CSI 300 (+4% vs. 14 Sep '21 close), 24,400 for the Hang Seng (-4% vs. 14 Sep '21 close) and 8,750 for the HSCEI (-4% vs. 14 Sep '21 close). This move is mainly driven by reductions in earnings growth forecasts for '21 and '22, as a result of macro headwinds and regulatory reset's impact on margins. We stay cautious on Chinese equities and continue to prefer A-shares to offshore China."

  • "Our economics team for China has reduced its '21 GDP growth forecast twice, to 8.2% recently, and has just cut its Q3 GDP Y/Y growth outlook by 60bp, to 4.5%. Recurrence of local/regional COVID outbreaks has hindered the recovery of private consumption and services. August retail sales data were greatly disappointing. The overall tightening policy since November '20 and elevated PPI level have put pressure on margins and corporate investment, as seen in recent subdued PMI readings."
  • "As regulatory reset transitions into the implementation phase, we believe the recent developments in cybersecurity, antitrust, and data privacy would curb margins and earnings growth for affected sectors. Uncertainty remains on how to quantify the broader objectives of regulatory reset in key sectors, and we suspect this is not yet fully discounted in stock prices."