"Obviously it's a volatile market here; the key thing we're emphasizing is that we're still well below long-run average Hang Seng valuations," Jonathan Garner, chief Asia and emerging market equity strategist at Morgan Stanley told CNBC.
Morgan Stanley on Monday upgraded its 12-month price target for the Hang Seng Index to 30,000 from 26,800. The new target would mark 8 percent upside from current levels.
"That 30,000 target assumes that we get back to 13 times forward PE, which is where the rest of Asia is trading already, so I think it's quite likely," he added.
The bank also raised its target for the Hang Seng China Enterprises Index, which tracks the H-shares index composed of Chinese stocks listed in Hong Kong, to 15,000 from 12,500. The index last traded around the 14,545 level.
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Regulatory changes are behind for the recent rush of money into the Hong Kong market. In late March, the China Securities Regulatory Commission granted mainland mutual funds approval to invest in Hong Kong stocks via the Shanghai-Hong Kong connect scheme.
The scheme, launched late last year, allows Hong Kong and mainland investors to invest in each other's markets up to a daily quota.
Previously, domestic mutual funds were only able to invest in overseas markets through the Qualified Domestic Institutional Investor (QDII) program, which requires regulatory approval.
On Monday, a report in Hong Kong's Oriental Daily speculated that the daily quota for Hong Kong stock purchases by mainlanders under the connect scheme will be nearly quadrupled to 40 billion yuan ($ 6.4 billion), Reuters reported.
"We had about $6 billion of mainland money coming into the Hong Kong markets last week, which is unprecedented," said Garner.