Investors around the world are predicting a number of calamitous downturns for China's economy, but a team of experts from Morgan Stanley are making the opposite call: Asia's largest economy will manage to avoid a financial shock and it will "continue to present significant investment opportunities for global investors."
The analysts forecast that China will overcome recent macroeconomic challenges and the prospect of a financial shock to transition into a high income economy by 2027. That will see the country's per capita incomes reaching $12,900 from the current $8,100, they say.
This is despite of their projection that China's growth could slow to an average of 4.6 percent in 2021-2025. The analysts say that rate of growth "will sufficiently support (China's) transition towards a high income economy."
That development will allow the MSCI China to continue to outperform the broader MSCI Emerging Markets Index. MSCI China has outperformed MSCI Emerging Markets by 3 percent per annum in the last 15 years, the Morgan Stanley analysts note in a 118-page report.
"MSCI China has also outperformed the S&P 500 by a far greater amount over this long time horizon, though the outperformance has paused in recent years. Our end of 2017 target for MSCI China is 66 (set at the end of November 2016 when MSCI China was 61), driven by a cyclical upswing in earnings and some modest multiple expansion on Southbound flows through the Connect programs," they say.
The Connect programs refer to the tie-up between China's mainland markets, Shenzhen and Shanghai, and Hong Kong's stock exchange. The programs allow foreign investors to buy China A shares through Hong Kong with fewer restrictions.
The Morgan Stanley report also says that China's transition into a high income economy will further push the country towards growth led by consumption, the services industry and high value-added manufacturing.
That bodes well for the IT, consumer and healthcare sectors, the analysts say. And among their picks of Chinese firms that would do well are Alibaba Group, ANTA Sports Product, Bank of China Limited and Ctrip.com.