After last month’s excitement over stimulus, Chinese stocks now face further challenges from rising U.S. trade tensions as earnings remain weak. “Stock selection remains important. [the] Laura Wang, Morgan Stanley’s chief China equity strategist, and her team said in a Thursday note that the investment bank’s analysts are weighing investment options, saying headwinds are blowing from tariffs, a weak currency and continued deflation. He cited the firm’s research on Chinese stocks, which it already covers. Companies selected stocks that were likely to outperform depending on which of three scenarios played out. Only the bear case takes into account significant U.S. tariffs and restrictions, while the base and bull cases assume the status quo in U.S.-China relations. , with $140 billion in annual fiscal stimulus and MSCI China’s earnings per share growth expected to be 3% this year and 5% next year, Morgan Stanley’s basket of bear-case stocks includes this year’s Only overweight-rated stocks with dividend yields above 4% are included. These companies are also at a disadvantage due to Republican policies and supply chain diversification, including free cash flow yields of over 4% from 2023 to 2025 and market capitalizations of over $2 billion. It shouldn’t be a company. The only consumer name to make the list was Ting Yi, a Hong Kong-listed company that owns the instant noodle brand Master Kong. The company is also PepsiCo’s exclusive manufacturer and distributor in China. The net profit of Teiyi’s beverage division increased by nearly 26% year-on-year in the first half of 2024, and the net profit of instant noodles increased by 5.4%. Morgan Stanley expects Teiyi’s earnings per share to grow 12% this year and 11% in 2025. Other Chinese companies in Morgan Stanley’s bear case basket included two state-run energy stocks, drilling company China Oilfield Services and oil specialist Cosco Shipping Energy Transportation. In the transportation of oil and natural gas. Both stocks are listed in Hong Kong, as is Sinotrack, the only company name on the bear list. This truck manufacturer is also state-owned. Morgan Stanley says China Oilfield Services could see earnings per share rise 41% this year and 33% next year, while Cosco Shipping Energy Transportation could see earnings rise 33% this year. , expects growth to slow to 16% next year. Morgan Stanley estimates that China Automotive’s profits could rise 18% this year and 17% next year. Morgan Stanley’s Wang said that despite recent improvement in economic data, MSCI China constituents have trended below earnings for 13 consecutive quarters. “Until there is more policy clarity, we expect further downward earnings revisions amid lingering deflationary pressures and geopolitical uncertainty,” Morningstar strategist Claire Liang said in a phone interview Friday. , Asian equity fund managers said they had slightly increased their exposure to China since the stimulus package was announced in September. “However, many executives say whether this rise can continue depends on whether policies can produce real results,” Liang said in Mandarin, as quoted by CNBC. Translated. He said executives are looking beyond stabilizing the economy to see if corporate profits can recover. Economic data for October released by China on Friday highlighted a slow economic recovery despite a series of recent stimulus announcements. Industrial production was lower than expected. Although the decline in new home sales slowed, growth in fixed asset investment was slower than expected due to the sharp decline in real estate investment. Only retail sales beat expectations with a 4.8% increase. For China’s export-heavy economy, the risk of U.S. tariffs has only increased in the past two weeks as Republicans took control of the U.S. Congress and President-elect Donald Trump filled his Cabinet with China hawks. Morgan Stanley’s U.S. policy team expects President Trump to impose tariffs soon after taking office, potentially hitting Europe and Mexico as well as imports from China. Although China is in a better position to avoid the impact of targeted tariffs than it was six years ago, analysts say that global tariffs on U.S. imports are likely to affect China as much as targeted tariffs in 2018. I expected it to be a blow.
