Morgan Stanley Sees Fast Trades as Key to Profit in China Stocks

Global investors who want to make money in Chinese stocks will have to trade a lot more quickly than they’re used to as volatility surges to the highest levels worldwide.

That’s the advice from Morgan Stanley strategist Jonathan Garner, who says price moves that usually take months in other markets are happening in a matter of days in China and Hong Kong. Volatility in the Hang Seng China Enterprises Index over the past 10 days has surged to the highest level among the world’s 40 biggest markets, data compiled by Bloomberg show.

Price swings are accelerating as mainland traders open up stock accounts at a record pace, increase their use of borrowed money and pour funds into Hong Kong shares through the city’s cross-border exchange link. The good news for money managers is that trading volumes have increased to all-time highs, making it easier to adjust positions as valuations rise or fall, according to Garner.

“You have to be aware that you don’t have the luxury of time here,” he said in a phone interview Wednesday. “You have to take a view more quickly than would be the case in other emerging markets, let alone developed markets.”

Interstellar Market

Garner, who invoked the space-travel movie “Interstellar” in a report describing how time appears to move faster in China’s stock market, said more global clients are researching shares on the mainland and Hong Kong now than at the start of the year. The Shanghai Composite Index has surged 26 percent since the end of December, while the Hang Seng China index has gained 20 percent and Hong Kong’s benchmark Hang Seng Index is up 17 percent.

“People are still underweight Hong Kong and China,” Garner said, while acknowledging the data comes with a lag. “In the last two weeks, we have seen a much greater degree of interest.”

Price fluctuations on Wednesday illustrate how volatile the two markets have become. The Shanghai Composite fell as much as 1.6 percent at 1:12 p.m. local time after an earlier gain of 0.6 percent, while the Hang Seng gauge erased a 0.9 percent increase.

Today’s swings were sparked by data showing China’s economy expanded at the weakest pace since 2009 last quarter, with output, investment and retail data pointing to a deepening slowdown. Investors are trying to weigh the impact of weaker growth on profits against prospects for more monetary stimulus.

“It’s certainly looking to be the case that this is one of the key equity bull markets in the world this year,” said Garner, the chief Asia and emerging market strategist at Morgan Stanley in Hong Kong. He has a “base case” target of 30,000 for the Hang Seng index, implying a further 8.8 percent gain from current levels. “Now is the time to take a view, bullish or bearish, that you can implement.”

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