The investment bank reiterated its call to downgrade Chinese stocks from the MSCI China index to equal weight, which means they should perform on par with other stocks in other emerging markets. This appeal was first launched in January this year.
MSCI China shares include both A shares listed on the mainland and offshore shares listed in Hong Kong.
Jonathan Garner, chief equity strategist for Asia and emerging markets at Morgan Stanley, explained why the bank repeated the call. “What we’re seeing, I think, is that antitrust regulation is sort of turning out to be a lot deeper and more enduring than we thought,” he told CNBC’s “Squawk Box Asia” on Tuesday. .
Authorities ordered app stores to remove Didi’s app for download, just days after the Chinese company launched its IPO in the United States. Chinese regulators also alleged that Didi illegally collected users’ personal data.
Since then, China has opened a cybersecurity review in three other Chinese companies listed in the United States.
Beijing recently launched a new battle front by tackling the use and collection of data. A data security law passed in June set the rules for how all businesses collect, store, process and transfer data. The law will come into force in September.
What this means for A shares
The regulatory announcement also indicated that Beijing would tighten restrictions on “illegal activities” in the securities market, including insider trading and financial fraud. It would be good for A shares as it indicates that China wants to improve the quality of its domestic markets, Morgan Stanley said.
“Not all businesses will likely be affected in the same way. We believe that Chinese companies in certain sensitive industries, such as data-rich technology companies and those operating in areas where foreign ownership is restricted, will likely seek more onshore and / or HK listings instead of in the United States. Said the investment bank.
The bank warned that more uncertainties lay ahead.
“Investors have seen several rounds of regulatory tightening in the industry (…) since the end of last year. We believe it would be more negative if the scope of regulatory tightening continued to widen and eventually evolve into a broader concern about Chinese equities in general, ”its analysts. wrote.