Foreign capital is back! Morgan Stanley: 80% of investors intend to increase their allocation to China in the short term

Significant shift in capital attitude, foreign capital heavily buys Chinese stocks.

On May 12, Morgan Stanley's latest research showed that hedge funds, especially American hedge funds, increased their bullish bets on Chinese stocks (including purchases of Chinese stocks listed in the U.S. and domestic A-shares) last week, due to an optimistic outlook on the progress of Sino-U.S. trade negotiations.

According to the latest news from CCTV News, the Ministry of Commerce released a joint statement on the Sino-U.S. Geneva economic and trade talks, stating that China will amend the announcement of the tax committee regarding the imposition of ad valorem tariffs on U.S. goods before May 14. Among them, 24% of the tariffs will be suspended for the initial 90 days, while retaining the remaining 10% tariffs on these goods, and cancel the additional tariffs on these goods according to the tax committee's announcements 2025 No. 5 and No. 6; necessary measures will be taken to suspend or cancel non-tariff countermeasures against the U.S. that have been in effect since April 2.

It is noteworthy that the report stated that over 80% of investors at the recently concluded Morgan Stanley China BEST conference indicated that they are likely to increase their exposure to Chinese stocks in the near term.

Underweight + Economic Resilience = Attractiveness of the Chinese Market

Morgan Stanley data shows that China remains the largest underweight region in global emerging market portfolios, underweighting the index benchmark (MSCI Emerging Markets Index China weight is 31.3%) by 2.4 percentage points.

This is the lowest underweight among all emerging markets rated as "overweight/neutral" by Morgan Stanley.

Additionally, Morgan Stanley analysis pointed out that the short-term tariffs have a negative impact on macro and corporate earnings, but the negative impact on China may actually be smaller than that on many other major economies and markets.

For example, regarding the actual GDP growth in 2025, Morgan Stanley's China economic team has revised its forecast down from 4.5% to 4.2% (a reduction of 6.7%), while the U.S. forecast was revised down from 1.5% to 0.6% (a reduction of 60%), and the overall Asia forecast was revised down from 4.4% to 4.0% (a reduction of 9.1%).

Furthermore, for earnings growth forecasts, Morgan Stanley has lowered its 2025 MSCI China Index forecast from 7% to 5%, while for the MSCI Emerging Markets Index, it was revised down from 11% to 3%. This indicates that the relative resilience of the Chinese market may exceed expectations.

At the same time, the report stated that since mid-April, the trend of capital outflow from the Chinese market has been rapidly reversed by the inflow of global passive funds. Meanwhile, Morgan Stanley also observed a significant slowdown in the outflow of active funds from the Chinese market

Artificial Intelligence, Technology, New Economy: Leading Sectors of the New Generation Stock Market

The report points out that the high attendance rate of AI, technology, and new economy sectors at the Morgan Stanley China BEST conference confirms Morgan Stanley's view that these industries are becoming the leading sectors of the new generation stock market.

The report states that recent breakthroughs in artificial intelligence, humanoid robots, electric vehicles, and supply chains have helped global investors regain confidence in the R&D capabilities of Chinese companies, as well as their ability to actively participate in and even lead global technology competition.

These breakthroughs are attributed to China's unique reserve of engineering talent, data availability, a well-established social network and e-commerce ecosystem, and potential further government support