China stock market outlook for 2025 as per Morgan Stanley

Investing.com -- Morgan Stanley analysts project a volatile 2025 for China's equity markets, citing downward earnings pressures, geopolitical risks, and potential tariffs.

"We still expect a more bumpy China equity market in 2025," the bank wrote in a note Friday. They highlight deflationary trends and persistent macroeconomic headwinds.

The bank noted that investor sentiment in the A-share market has already weakened, with the Morgan Stanley (NYSE:MS ) A-Share Sentiment Index (MSASI) dropping 8 percentage points to 77%.

Daily turnover across key segments, including ChiNext and A-shares, fell by 10%-17% from November 21-27, according to Morgan Stanley.

Additionally, they highlight that downward earnings revisions continue to accelerate, reflecting uncertainty in the market.

Key macroeconomic concerns are said to include the potential imposition of 25% tariffs on Chinese imports by the incoming Trump administration.

Morgan Stanley adds that while exports remain resilient due to competitive pricing, the housing market showed mixed signs, with improved sales but low developer confidence. Manufacturing PMI is expected to hold steady at 50.1 for November, signaling moderate expansion.

Morgan Stanley anticipates front-loaded pressures on China's equity market, driven by persistent earnings weakness into 2025, a depreciation of the USDCNY to offset tariff impacts, higher equity risk premiums from a more hawkish U.S. policy stance, a potential escalation of U.S.-China tensions and profit-taking following relatively strong year-to-date performance.

Despite these challenges, Morgan Stanley prefers A-shares over offshore equities. They note A-shares' reduced sensitivity to geopolitical and currency fluctuations, as well as direct liquidity support from the PBOC's swap and re-lending programs.

The firm's 2025 strategy includes favoring A-shares with strong earnings and shareholder return potential while avoiding stocks exposed to tariffs or supply chain vulnerabilities. Their China/Hong Kong Focus List and A-share Thematic List highlight preferred trades for navigating this uncertain landscape.

Source: Investing.com