M UpdateChina Equity Strategy | Asia PacificA-Share Sentiment Increased on Price Rebound, While Risks Remain Morgan Stanley Asia Limited+Laura WangEquity Strategist Laura.Wang@morganstanley.com +852 2848-6853 Catherine ChenEquity Strategist Catherine.Chen@morganstanley.com +852 3963-4186 Morgan Stanley appreciates your support in the 2024 Institutional Investor All-Asia Research Team Survey. Voting will open early January 2024. Exhibit 1 : MS A-share Sentiment Indicator (MSASI): 40% (weighted), up by 3ppt vs. December 20 15002000250030003500400045005000550060000%10%20%30%40%50%60%70%80%90%100%Jan-14Jun-14Nov-14Apr-15Sep-15Feb-16Jul-16Dec-16May-17Oct-17Mar-18Aug-18Jan-19Jun-19Nov-19Apr-20Sep-20Feb-21Jul-21Dec-21May-22Oct-22Mar-23Aug-23Jan-24MSASI (Simple)MSASI (Weighted)MSASI (Simple) CurrentMSASI (Weighted) CurrentCSI300 (RHS)75%20%=40%29% Source: CEIC, Bloomberg, Wind, RIMES, Morgan Stanley Research. Data as of January 3, 2024.Sentiment improved slightly on higher turnover and marginally better price momentum. We remain relatively cautious given continuous earnings pressure, potential policy vacuum and softening macro growth.A-share investor sentiment improved slightly vs. the prior week: Weighted and simple MSASIs increased by 3ppt and 4ppt, to 40% and 29%, respectively. Average daily turnover (ADT) for ChiNext, A-shares and Northbound during December 21-January 3 increased by 5%, 6% and 2%, respectively, while equity futures dropped by 19% compared to the prior five-day cycle (December 14-20). RSI-30D increased by 35ppt during the same period. Consensus earnings estimate revision breadth remained in negative territory, but the downward momentum has slowed since the week of November 22.Northbound net inflows totaled US$1.9bn during December 21-January 3, ending the sixth straight week of net outflows: Northbound December net outflows reached US$1.8bn, while 2023 total net inflows settled at US$8.6bn, a new annual low in Stock Connect history, with five straight months of net outflows over August-December. Southbound net inflows hit US $1.9bn over December 21-January 3. Southbound December net inflows stood at US$1.0bn and 2023 yearly net inflows totalled US$40.7bn. Market sentiment remains lackluster amid continuous weak macro data: Domestic demand slowed faster than external demand, as indicated by the overall new order index, while the December PMI miss indicated softening 4Q growth and slower infrastructure capex expansion. Meanwhile, primary housing sales in 50 cities remained sluggish, with YoY growth across all tiers of cities between January and December, down 6.4% and worse than the January-November yoy contraction of 5.8%. China Securities Journal reported that Beijing could introduce new measures to encourage fund flows to the capital market amid continued deflation pressure. That said, what detailed actions could entail, the timing and actual effect could be debatable as long as macro...
