Morgan Stanley on Monday raised its growth forecast for China’s gross domestic product (GDP) for 2023, driven by the faster reopening of the economy post the COVID-19 pandemic.

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In its research report dated January 9, Morgan Stanley said that it sees an earlier and stronger growth recovery for China from the first quarter of the calendar year 2023 amid faster reopening, stronger housing support, and tech regulatory easing.

Morgan Stanley lifted its China GDP growth forecast by 0.3 percentage points to 5.7 percent year-on-year, while also raising the 12-month USDCNY target to 6.65.

“We believe the market is under-appreciating the far-reaching ramifications of reopening and the possibility that a robust cyclical recovery can occur despite lingering structural headwinds,” it said in its report.

Morgan Stanley also predicted that China was set to top global equity market performance in 2023. It raised price targets across the board for Chinese equity indices, moving their previous bull case to become the new base case, especially for the offshore indices (MSCI China, Hang Seng, and HSCEI).

China GDP Estimates for 2023

It said it saw another 13-16 percent upside (as of January 5, 2023 close) in China markets by the end of 2023, compared to 2 percent, 0.3 percent, and 12 percent, respectively, for S&P500, MSCI Europe, and MSCI EM, as per its base case forecasts.

“An ongoing constructive reassessment of China’s Equity Risk Premium and a major ROE (return on equity) recovery over the next two years are key structural developments that we expect, but are yet to be fully appreciated by the market,” the report said.

“The current situation is on par with that in late 2008/early 2009, in our view, with many investors insufficiently exposed to what is likely a key cross-asset portfolio alpha driver for 2023,” it added.

Morgan Stanley advised investors to accumulate stocks of large-cap, highly liquid Chinese internet companies, with a preference for Alibaba, to best take advantage of the China rally at this stage.

(Edited by : Rukmani Krishna)