The firm expects the CSI 300 index to test its 2015 high over the next year
With Chinese state media stoking the flames of a bull market domestically, Morgan Stanley is joining the chorus now to say that mainland stocks will still have some way to rise over the next twelve months at least.
The firm wrote in a note today that:
"A Chinese equity bull market is building with rising volumes amid improved visibility and liquidity, plus regulatory and policy support."
Adding that they have set a target for the CSI 300 to hit 5,360 over the next year i.e. a retest of the highs seen back in 2015.
Chinese equities had yet another solid session today with the CSI 300 closing 1.6% higher and the Shanghai Composite closing up by 1.7%. I wouldn't doubt that this euphoria may still run its course over the next few months but some caution needs to be heeded.
The bull run back in 2015 is a good anecdote of what could happen when markets move too far, too fast with the CSI 300 falling by 45% from its high over the next two months and closing the year 30% lower from the peak.
Granted, the situation today is more different with excess liquidity being the main driver and local authorities are desperate to paint a better picture of the economy in any way possible; pretty much the same with the US ahead of the elections.
But if the market does still hold any form of fundamentals, is that nothing ever moves in a straight line. Hence, while the exuberance here may see Chinese stocks keep a strong rally over the next few months, there's every chance that it could end in tears eventually.
