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Why Morgan Stanley cut forecast for China’s first quarter GDP in 2022


Before receiving the nucleic acid test for Covid-19 from a private site in Beijing on January 17, 2022, a woman displays her test kit and swab to a healthcare worker.

Kevin Frayer | Getty Images News | Getty Images

According to Morgan Stanley, an American investment bank Morgan Stanley believes that China’s zero Covid policy will have more economic consequences than its benefits.

China’s intolerant attitude towards Covid places it at disadvantage when compared with other countries using an endemic strategy. CNBC’s Emily Tan spoke to Laura Wang, China Equity Strategy chief.

In January, the U.S. investment bank cut its forecast for China’s first quarter GDP — lowering estimates to 4.5% growth year-on-year, from its previous prediction of 4.9%.

“We [started]Wang said that omicron could put a lot more pressure on the economy. “This year, the cushion from growing exports may potentially not be as high as … last year because a lot of other countries and markets [are]Already reopening.”

According to her, “We expect an increase in earnings consensus.” “At this point, investors seem to be too optimistic with their expectation of corporate earnings,” she stated.

Wang indicated that A-shares will be preferred over MSCI China 2022. A-shares, which can be described as yuan-denominated shares owned by companies located in China’s mainland China and are traded on the Chinese stock exchanges of Shanghai or Shenzhen.

According to the bank, the CSI 300 index will reach 5,250 in one year and the MSCI China index 95 by the end of the same time. After losing about 5% in the year, the CSI 300 currently trades at 4,680. The MSCI China index, which foreign investors often use as a benchmark, is hovering at about 82 — lower by 1.3% year-to-date.

Morgan Stanley reported Jan 16 that there was “rising uncertainty due to onshore micron spread,” [and]There are several reasons why you should be wary of Chinese equities.

Morgan Stanley’s initial 2022 full year forecast for China at 5.5% growth was maintained, however it noted that there are still downside risks to potential lockdowns and “the loss of Q1 is not likely to be compensated.”

The bank doesn’t expect any change to its zero-Covid policy in the second half 2022.

Private consumption would bear the greatest burden, with a rise in social distancing or local/regional locking down possibly becoming inevitable. Morgan Stanley analysts stated that a de facto “stay-home” Lunar New Year (LNY), is becoming more likely due to China’s “Covid-zero” strategy.

CNBC Pro provides more details about China

China has reported that it first omicron CovidCommunity continues to spread throughout cities and is expected to continue in the December case. Beijing officials also remain “full emergency mode“Ahead the Winter Olympic Games and Lunar New Year Travel Season.

Morgan Stanley observed that despite lowering its GDP growth forecasts for the first quarter, “recovery may regain footing amid policy ease.”

The following week was marked by the People’s Bank of China cut the 14-day reverse repos rateReuters reports that the Lunar New Year saw a drop in liquidity to 2.25% from 2.35%.

Beware of ‘policy mistakes’

Most analysts expect China’s economy will pick up in the second quarter, thanks to expected economic stimulus and monetary ease.

According to Catherine Yeung (investment director, Fidelity International), China is likely to outperform all other markets in the coming year.

Higher volatility could result in growth stocks due to the Fed’s hawkish policy change and upside surprises regarding U.S. inflation.