Investor Sentiment Rebounds in Chinese Stock Markets

Investor sentiment in Chinese mainland stock markets has rebounded with rising expectations for supportive economic policies ahead of next week’s Central Economic Work Conference (CEWC), according to Morgan Stanley (NYSE: MS).

China's A-share market, which includes stocks traded in Shanghai and Shenzhen in local currency, has seen increased trading activity and optimism among investors compared to last week. Morgan Stanley analysts reported a notable improvement in the Morgan Stanley A-share Sentiment Indicator (MSASI), with its weighted measure increasing to 83% from 77% last week. Additionally, average daily trading volumes across key segments, including ChiNext and Northbound trades, have risen, indicating growing investor interest.

This optimism coincides with signs of stabilization in China's manufacturing sector. The Purchasing Managers’ Index (PMI) for manufacturing rose to 50.3 in November, marking expansion for the second consecutive month. Analysts credit this improvement to fiscal measures aimed at boosting infrastructure investment, although concerns regarding weak consumer demand remain.

Geopolitical tensions and currency depreciation risks continue to impact the market. The U.S. dollar-Chinese yuan exchange rate has faced pressure, which could influence trade and investment dynamics, as highlighted by Morgan Stanley analysts.

Despite current optimism, the brokerage maintains a cautious outlook for the broader market in 2025. Key risks include ongoing downward pressure on corporate earnings, potential reductions in consensus earnings estimates, and escalating U.S.-China tensions.

Looking forward, analysts suggest that the CEWC may unveil new fiscal and monetary measures, likely to be moderate. Proposed policies are expected to focus on supply-side reforms rather than direct consumer stimulation as policymakers navigate a complex economic landscape. Morgan Stanley also pointed out persistent challenges for China’s equity market, such as geopolitical risks and the likelihood of tighter global monetary policies.