Morgan Stanley says Chinese stocks could move beyond short-term gains and enjoy a more “sustained rally” in the next phase, riding the wave of stimulus and signals announced last week. There is. Morgan Stanley analysts said in a Sept. 29 note that “last week's policy shift…was driven by strong monetary easing and unprecedented measures aimed at stabilizing and supporting stock markets and halting declines in real estate markets. , exceeded our expectations.” They predict an increase of at least 10% in the short term and even more beyond that. “The next step is [we] Valuations could return to levels last seen during the economic reopening period from November 2022 to March 2023 if earnings improvement is “more evident” amid a broader growth recovery and efforts to end deflation. “We expect a more sustained rise.” Against this backdrop, the bank said it is prioritizing certain stocks that are expected to benefit from easing measures. These stocks include A-share companies with “excess” dividend yields and free cash flow compared to a 2.25% amortization rate. The company said it is listed in both Hong Kong and the mainland, with the latter able to benefit from easing measures. A-shares are stocks listed in mainland China. Equity Review Morgan Stanley conducted several equity reviews to screen the stocks that were created. I will introduce two of them. First, six Hong Kong-listed stocks rose, trading at a deep discount to A-shares and should benefit from the central bank's announcement, the paper said. Second, we screened for these stocks whose current dividend yield was below 2.25%, but whose free cash flow yield was “significantly” above 4% with borrowing costs of 2.25%. In other words, these companies are likely to be more willing to increase dividends, buy back their own stock, and increase the number of shares they own. China's economic stimulus measures Chinese stocks are already on the rise after the People's Bank of China announced a series of measures to boost economic growth, including a 50 basis point cut in the reserve requirement ratio (RRR) for cash held by banks. It rose again last week and on Monday. It also announced plans to cut interest rates. It also followed a high-level meeting in which leaders called for a halt to the decline in the real estate market and strengthened fiscal and monetary policies. Morgan Stanley said it expects a supplementary budget for consumption and local government financial support to be released in late October. Further rate cuts of 10-20 basis points and RRR cuts of 25-50 basis points are expected by the end of the year. -CNBC's Evelyn Cheng contributed to this report.
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