Morgan Stanley: Short-term bullish on Hong Kong stocks outperforming A-shares Hong Kong is the preferred destination for foreign investors to allocate Chinese assets.

Global stock markets experienced significant volatility last Friday. Wang Ying, Chief Stock Strategist at Morgan Stanley China, stated in a report that despite the recent increase in global market volatility, liquidity in the Chinese market remains positive. This is mainly due to effective cooling measures in the A-share market, a strengthening Renminbi exchange rate, and early signs of continued regulatory improvement in the Hong Kong market. In the short term, Hong Kong stocks are expected to outperform A-shares, but this still depends on whether global market volatility can decrease rapidly. In addition, Morgan Stanley mentioned that escalating global geopolitical uncertainties may increase the attractiveness of Chinese assets, with Hong Kong naturally becoming the preferred location. Morgan Stanley noted that after experiencing a continuous bullish market this year, as the Lunar New Year approaches, the bank has observed some profit-taking activities. However, recent developments in the market will continue to support the improvement of liquidity in both the Hong Kong and A markets. However, if the global selling spree continues, market corrections may last longer. "With escalating global geopolitical uncertainties, the attractiveness of Chinese assets may increase, with Hong Kong naturally becoming the preferred location due to its still reasonable valuations, low global investor holdings, numerous stock investment opportunities, and an active IPO market. In addition, Morgan Stanley predicts that the Renminbi exchange rate will further strengthen, which will also help enhance the attractiveness of Hong Kong." Morgan Stanley expects that heavyweight stocks in A-shares will outperform low-priced stocks in the short term, as the valuation of heavyweight stocks has dropped to a 5-year low, and with the Lunar New Year approaching, investors may find the valuation and return of heavyweight stocks more attractive, as market liquidity tightens during the New Year period, investors may take profits before the market closes.