Morgan Stanley upgrades its 2023 growth outlook for China

Morgan Stanley raised its outlook for China’s economy in 2023, predicting a rebound in activity will come earlier and be sharper than expected.To get more china business market news, you can visit shine news official website.

The firm raised its forecasts for the country’s gross domestic product in 2023 to 5.4% from its previous outlook of 5%, according to a research note led by the firm’s chief Asia economist Chetan Ahya.

“We had previously expected a rebound in activity to materialize from late 2Q23. Now we are projecting mobility to improve from early March,” the note said, adding that the firm expects to see a “faster and sharper rise in mobility” to be reflected in the economy starting in the second quarter.

The outlook upgrade comes after the firm raised its recommendation rating for Chinese equities to overweight from equal-weight earlier this month on reopening optimism, marking the end of a stance that it held for nearly two years.
China’s government is also shifting to prioritizing economic growth, another pillar behind Morgan Stanley’s revised forecast for the country’s economic outlook.

“From our perspective, policymakers are taking concerted action to lift growth across all fronts,” the note said. “This is the first time since 2019 where domestic macro policies and Covid management are aligned in supporting a growth recovery, rather than acting as countervailing forces.”

Reuters separately reported that the nation is working on a stimulus package worth more than $143 billion to support its semiconductor industry, which would be one of its biggest-ever fiscal incentive package.

Underpriced yuan
Morgan Stanley also sees China’s foreign exchange rates as underpriced.

“In FX, we don’t believe that the market is pricing in the reopening trade fully yet,” the note said, adding that forex traders have historically converted their holding of the U.S. dollar into Chinese yuan while the onshore currency was stronger.

“Given the recent appreciation of CNY, they now have more incentive to convert, pushing CNY stronger, especially before the Chinese New Year when they need to pay wages and bonuses,” the economists said in the note. stood at 6.9590 against the U.S. dollar on Wednesday morning – below the key 7.0 level against the greenback, which Morgan Stanley said makes it more attractive for exporters to buy more Chinese yuan with U.S. dollars.

One of the risks that Morgan Stanley acknowledged is a potential withdrawal of policy support.

During China’s reopening process, analysts expect a surge in Covid infections. A rapid increase in hospitalizations and strain on the public health care system could possibly lead to officials in China rethinking their policy stance.