Following Goldman Sachs, Morgan Stanley has also clearly turned bullish on the Chinese stock market, and also believes that "A-shares are better than H-shares."

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Following Goldman Sachs, Morgan Stanley has also issued a clear bullish signal for the Chinese stock market, and similarly recommended "A-shares over H-shares" for portfolio allocation, with both Wall Street giants reaching highly similar judgments.

Analysts Laura Wang and others from Morgan Stanley released the latest research report, raising the target levels of several Chinese stock indices based on early signs of improved corporate earnings and the dominant position of domestic companies in the global supply chain. Among them, the target for the CSI 300 index was raised to 5,400 points, implying about 9% upside from Tuesday’s closing price.

In terms of allocation direction, Morgan Stanley clearly states its preference for A-shares over H-shares. Reasons include the higher concentration of upstream high-end manufacturing and hardcore tech companies in A-shares, the spotlight on the IPO market, and the support of the “national team” ready to act. As second quarter results are gradually disclosed, factors such as strong exports, early signs of reflation, and a rationalizing competitive landscape in e-commerce are expected to further improve the outlook for corporate profits.

Morgan Stanley’s stance corresponds closely with that of Goldman Sachs. In its Asia stock strategy report, Goldman Sachs likewise recommended "strongly overweight China, A-shares over H-shares" and raised the 12-month target for the CSI 300 index to 5,300 points, implying around a 9% price increase and a 13% total USD return.

Early Signs of Earnings Improvement, Multiple Index Targets Raised in Tandem

Morgan Stanley points out that there are early signs of improvement in Chinese corporate earnings. The overall earnings of MSCI China A-shares for Q1 2026 are still below consensus expectations, but the degree of underperformance is significantly less than in Q4 2025— the number of companies missing expectations has notably decreased compared to the previous quarter.

Structurally, the earnings improvement is mainly concentrated in industrials and financials. As Q2 results are published from July, supported by strong export growth, early signs of reflation, and more rational competition in the e-commerce sector, corporate earnings prospects may become more favorable.

Driven by the logic of earnings improvement, Morgan Stanley has raised the target levels for multiple Chinese stock indices. The target timeline for the CSI 300 index has been extended to Q2 2027, and the target raised from 4,840 points (for December 2026) to 5,400 points, about 9% higher than Tuesday’s closing.

The target for the Hang Seng China Enterprises Index was raised from 9,700 to 9,900 points, and that for the MSCI China Index was slightly raised from 90 to 91 points.

A-shares Over H-shares: Structural Concentration Is Key

On the choice between A-shares and H-shares, Morgan Stanley’s position is clear. Given the higher concentration of upstream high-end manufacturing and hardcore tech companies in A-shares, coupled with sustained enthusiasm for the A-share IPO market, Morgan Stanley’s preference for A-shares outweighs H-shares.

For specific sectors, the report favors heavy asset industries upstream, considering their relative resilience to the impact of the AI super cycle, with certain materials, industrials, and energy sectors explicitly highlighted as focal points.

Goldman Sachs likewise points out the structural headwinds facing H-shares— about 37% of the MSCI China Index weight is concentrated in software tech stocks. Against the global backdrop of favoring hardware and selling software, H-shares face short-term pressure. By contrast, A-shares benefit from the PPI ending 41 months of deflation and returning to positive growth, sharply raised earnings expectations for 2026, and a 4% total shareholder return rate attracting household savings into the market. The consistency of the core logic between the two institutions provides a clearer reference for current China stock market allocation directions.

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