Morgan Stanley: China Stocks May Drop Another 10%-15% Before Bottoming Out
nashnova research
Morgan Stanley warns offshore Chinese stocks could drop another 10% to 15% before hitting historical valuation floors — and the timing of the "national team" stepping in may determine when the bottom arrives.
Where is the "bottom" Morgan Stanley is pointing to?
The historical valuation floor for offshore Chinese equities sits around 8x forward P/E — forward P/E uses projected earnings over the next 12 months to gauge whether a stock is cheap or expensive.
The Hang Seng currently trades at 9.5x; the CSI 300 at 11.6x — both above Morgan Stanley's floor.
This means → under their framework, offshore names still face a 10–15% gap to the bottom, while A-shares target roughly 10–11x, also requiring a markdown.
What is driving the sell-off?
Morgan Stanley names four forces converging: trust-tax selling fears, e-commerce sector pressure, weakening macro data, and rising global volatility.
The analysts wrote: "New developments over the past two weeks have further intensified negative momentum."
In plain terms = no single catalyst — several pieces of bad news landed at once, creating a self-reinforcing downdraft.
Why does Morgan Stanley prefer A-shares over Hong Kong?
Two reasons: the "national team" is ramping up support for A-shares; A-shares have higher concentration in fast-growing segments — AI, hard tech, and innovation plays.
This reflects Morgan Stanley's core logic — a policy-backstopped market has a tighter downside band, and growth-heavy sectors offer more rebound elasticity.
How should investors read the "national team" signal?
Morgan Stanley flags high-profile national-team buying as the single most important marker to watch.
Historical pattern: after policymakers publicly commit to stabilizing equities, markets tend to bottom one to two months after large-scale state buying begins.
The report states: "Beijing is currently trying to shift the marginal supply-demand balance and establish a market floor without resorting to heavy-handed intervention."
This means → Morgan Stanley believes policy ammunition remains ample, and A-share stabilization could emerge within one to two months — but only if the national-team signal is clear enough.
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