Morgan Stanley Ends Seven-Year Bullish Call on Chinese Equities

Morgan Stanley downgraded Chinese stocks for the first time in more than seven years, saying the market has become expensive after share prices surged and profitability fell to the weakest level since the global recession in 2009.

The U.S. brokerage lowered its rating to equal-weight from overweight on the MSCI China Index, Jonathan Garner, its Hong Kong-based head of strategy for Asia and emerging markets, wrote in a report dated May 7. The downgrade comes after a two-day, 5.6 percent rout for China’s benchmark Shanghai Composite Index as concern that new share sales will sap funds spurred the biggest selloff in three months for that period.

“China’s dramatic recent outperformance has driven a deterioration in absolute and relative valuations and a worsening technically overbought situation,” Garner said in the report.

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