Morgan Stanley analysts project a further decline of 10% to 15% for offshore Chinese stocks. This adjustment would bring valuations to historical levels of approximately 8 times forward earnings. Mainland shares are expected to undergo a similar re-rating, reaching 10 to 11 times forward earnings.
The bank notes that 2026 profit forecasts for MSCI China members have decreased by over 4% since late March. Reported financial results have consistently missed market expectations by an average of 9%. These pressures are attributed to reduced consumer spending and ongoing price competition.
The timeline for a potential market bottom depends on interventions by state-backed funds, often referred to as the national team. Historically, markets tend to stabilize one to two months following significant state purchases. Central Huijin, a primary state investor, reportedly held approximately $188 billion in available capital as of last week.
Morgan Stanley suggests that proactive policy messaging and available state resources could lead to stabilization in the A-share market within the next one to two months. Previous interventions, such as those in early 2024 and 2015, demonstrate that state-led buying programs have historically preceded market rebounds.
