Morgan Stanley continues to be bullish on the Chinese stock market: foreign capital has not yet truly participated in this round of rebound and there is still a lot of room for allocation.

After abandoning their bearish stance, Morgan Stanley continued to express optimism for the Chinese stock market. Laura Wang, Chief Stock Strategist of Morgan Stanley China, stated in an interview with Bloomberg on the 21st that despite significant rallies in A-shares and Hong Kong stocks since the end of January, foreign capital has not yet fully participated in this rebound and there is still a lot of room for allocation. She said: "Investors are still seriously under-allocated in China. Therefore, there is still a lot of room for them to increase their allocation from now on." According to Morgan Stanley's analysis and data, the main incremental funds driving this rebound come from "southbound trading," referring to mainland funds flowing into the Hong Kong market through the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect. So far this year, as much as $25 billion has flowed into Hong Kong. In addition, some regional and China-focused funds have also actively participated in this rebound. However, it is worth noting that actively managed funds or passive funds based in the US or Europe have not yet truly participated in this rebound. This means that a large amount of potential foreign capital is still staying on the sidelines. Laura said: "If you look at active or passive funds in the US or Europe, they have not really participated in the geopolitical changes, technological innovations in China, and the market rebound triggered by Monday's symposium." Morgan Stanley believes that several key changes are increasing the attractiveness of the Chinese market. Firstly, the easing of geopolitical tensions has injected confidence into the market. Secondly, China's breakthroughs in technological innovation, especially the strong signals released at the private enterprise symposium held on February 17th, further enhance the market's long-term growth potential. Laura emphasized that these positive changes are happening very rapidly, and many investors still have a serious under-allocation in the Chinese market. Therefore, there is still a lot of room for foreign capital to increase their allocation to the Chinese stock market in the future. On the 20th, Laura Wang's team released a report stating that they are turning bullish on the Chinese stock market, expecting the MSCI China Index to rise by another 4%. The report stated that the Chinese stock market, especially the offshore market, has finally undergone a structural transformation, making them more confident than last September's rebound that the recent improvements in the MSCI China Index can be sustained. Previously, Morgan Stanley had been cautious about Chinese stocks. Some views point out that Morgan Stanley's upgrade this time is a major shift, indicating that global investors' attitudes towards the Chinese market may be undergoing a fundamental change. Even in October, when China's monetary stimulus measures triggered a rally in the stock market, Morgan Stanley almost didn't change its stance - just reducing its underweight position. Xing Ziqiang: "Animal Spirits" Return to the Chinese Market On the 21st, Morgan Stanley's Chief Economist in China, Xing Ziqiang, and his team published a research report pointing out that recent technological breakthroughs, the private enterprise symposium, and Alibaba's high capital expenditure plan are considered early signs of the return of "animal spirits," but this spirit is currently limited to the tech industry. The report mentioned that the focus of this symposium has shifted to emerging technology areas such as artificial intelligence, Siasun Robot & Automation technology, and autonomous driving. Morgan Stanley believes that this policy change reflects an adjustment in the priority of China's economic development, with the tech industry gradually becoming a new engine driving economic growth. At the same time, Alibaba's announced capital expenditure plan significantly exceeded market expectations, showing the tech industry's strong confidence in future development. Analysis points out that large-scale language models (LLMs) with high cost-effectiveness in China have reduced training and inference costs, which will drive faster popularization and application of related technologies. This article was reprinted from "Wall Street Findings," author: Zhang Yaqi; GMTEight editor: Jiang Yuanhua.