Morgan Stanley raises China stock index targets for second time this year on earnings optimism

SHANGHAI, March 26 (Reuters) - Wall Street firm Morgan Stanley MS.N raised their index targets for Chinese shares for a second time this year, citing higher earnings growth forecasts and a better outlook for the economy and currency.

The bank revised up its year-end index targets for Hong Kong's benchmark Hang Seng Index .HSI, Hang Seng China Enterprises index .HSCE, MSCI China index .dMICN00000PUS and China's blue-chip CSI300 index .CSI300 to 25,800, 9,500, 83, and 4,220 points, respectively.

"The new and higher index price targets are driven by both moderate increases in earnings growth forecasts and higher valuation targets," the U.S. bank said in a note on Wednesday.

It also cited "improved macro and FX outlook forecasts".

Chinese stocks have gained momentum this year, with the MSCI China index about rising 16% so far this year, underpinned by investor optimism about progress in generative AI and Beijing's stimulus measures to support consumption and the broader economy. .SS

Morgan Stanley also raised its forecast for China's economic growth in 2025 to 4.5% from 4.0% previously. It revised its yuan predictions to 7.35 per dollar by mid-2025 and 7.50 at the end of this year, versus 7.50 and 7.60, respectively, in a previous estimate.

"We have always made the point that currency strength serves as an important factor for Chinese equities, especially for the offshore market.

"This is because foreign investors' funding costs are usually in U.S. dollar terms, which means a relatively stronger or less weak currency should be a positive catalyst from an asset allocation perspective."