On August 4th, rumors circulated on the internet that "Morgan Stanley was investigated for downgrading Chinese stocks in a research report," causing market apprehension.
Informed sources have told the "International Finance Daily" reporter that the claim "Morgan Stanley was investigated because of the downgrade of Chinese stock ratings" is unfounded.
What's going on here?
Morgan Stanley was investigated
The Shanghai Securities Regulatory Bureau's official website announced on July 31st that, to implement the "double random, one public" system, they have recently initiated on-site inspections of securities companies within the Shanghai jurisdiction. This includes directors, supervisors, practitioners' management, anti-money laundering, and investor suitability management, based on a double random sampling work process. Morgan Stanley Securities (China) Co., Ltd. and Cheung Kong Securities Underwriting & Sponsoring Co. were among the randomly selected inspection targets. The Shanghai Securities Regulatory Bureau will conduct on-site inspections of these organizations in due course, in accordance with the requirements of the SFC.
Coinciding with this, Morgan Stanley analysts recently downgraded China's stock ratings in a report, sparking market discussion and rebuttals from several institutional chiefs.
Many speculated that the "double random" inspection of Morgan Stanley was related to the research report and questioned whether the investigation was due to the downgrade of China's stock ratings. However, informed sources have clarified that this is not the case.
According to the analysis provided by these sources, there is no causal link between the Morgan Stanley Asia Research report released on August 2nd of this year and the Shanghai Securities Regulatory Bureau's announcement of the on-site inspection results on July 31st. Furthermore, the research report in question was issued by Morgan Stanley Asia Research, and Morgan Stanley Securities (China) Co., Ltd. does not currently hold a research license, indicating no direct connection between the report and the entity inspected.
Downgrade of Chinese Stocks
In the August 2nd report, Morgan Stanley analysts stated, "Downgraded Chinese stocks, recommending that investors take profits," suggesting that "policy-related easing measures, if weak and bland, may not be sufficient to sustain rising stock prices."
Several domestic public equity representatives have commented, "The market is very diverse in investment philosophies, methods, and market judgments." They highlighted that the significant meeting at the end of July has further reinforced policy bottom expectations, with positive changes occurring in the domestic and international financial and economic environments. They suggested that equity assets could be moderately increased in allocation in the market's bottom area.
Many leading economists, macro researchers, and strategy analysts have also weighed in, emphasizing the market's inclusivity of investment views. They advise against over-worrying or amplifying concerns about individual statements from an organization or individual, advocating for a more optimistic market outlook overall.
Individuals familiar with the matter have noted that some content of the research report differs slightly from previous reports. Morgan Stanley Equity Strategy Research has adjusted the MSCI China Index from "overweight" to "underweight." The MSCI China Index includes not only A-shares but also other constituents. The report maintains a 7% upside potential for the MSCI China Index in the future and has not revised the forecast for the CSI300 index, which remains at 4,620 points (until the end of June 2024).
Financial commentator Zhang Xuefeng has advised reporters, "Morgan Stanley's decision to downgrade Chinese stocks is based on their own judgment and assessment. Investors should determine their agreement based on their own research and judgment. The outlook for China's stock market varies by individual perspective, and investors need to consider a multitude of factors before making a decision."
