On Friday, Morgan Stanley strategists issued a warning against investing in Chinese stocks as foreign investors continue to sell off their holdings in response to ongoing geopolitical tensions, economic challenges, and China’s unresolved housing crisis. Notably, the A-share market experienced an unprecedented outflow of $22.1 billion from August to October via Stock Connect, making it the largest outflow in the market’s history.
Despite President Xi Jinping’s efforts to stabilize the property market and mitigate deflation, the impact has been limited. Foreign investors are bracing for a third consecutive month of stock sales in Shanghai and Shenzhen. The Shanghai Composite Index has fallen below a critical level, signaling that if foreign investors sell an additional $9.6 billion in shares, 2023 could be the first net-selling year since the inception of trading links in 2016.
Given these developments, Morgan Stanley previously stressed the importance of ongoing recovery measures. They highlighted positive indications from a July Politburo meeting, suggesting that comprehensive strategies might be necessary to restore investor confidence.
Several upcoming events are expected to carry significant implications for the Chinese stock market. These events include the APEC Summit, where a potential meeting between US President Joe Biden and President Xi Jinping may occur, the Third Plenum, and the rollout of market policy measures. The outcomes of these events could play a crucial role in rebuilding investor confidence and potentially reversing the current downward trend in Chinese stocks.