Morgan Stanley expects adverse China market reaction from A-share delay; ‘overweight’ on high-beta stocks

SINGAPORE (June 15): Morgan Stanley Research predicts that the A-share market is “likely to react negatively” to MSCI’s no-go for A-share inclusion in its indices – which has in turn spurred its bottom-up analysts to give A-share listed high-beta stocks, and those covered by the research house, an “overweight” rating.

MSCI announced on Tuesday that for the third year running, it has decided against the inclusion of China A-shares in its indices, saying that more time will be needed to address investor concerns. Morgan Stanley had previously described the likelihood of inclusion this year as “at best 50/50”.

In a Wednesday report, Morgan Stanley’s research team says it has been “relatively cautious” on the prospect of A-shares’ inclusion in MSCI, as it believes “Shanghai and Shenzhen Exchanges’ anti-competitive clause was likely to remain a critical issue and Chinese regulators would need more time to develop a satisfactory solution”.

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