Morgan Stanley Forecasts Hong Kong Market Recovery in Late July on Tech Earnings

Morgan Stanley analysts maintain a positive outlook on Hong Kong's markets, projecting the start of a sustainable recovery in late July and August. The investment bank attributes this potential rebound to accelerating earnings growth in the technology sector, which is expected to provide support once global market volatility subsides.

The Recovery Thesis

In a research note, Morgan Stanley identified late July and August as a key period for a market turnaround. The firm's positive stance is underpinned by the expectation that strengthening fundamentals, particularly within tech, will drive performance.

This forecast comes despite some recent market softness, which the bank noted was influenced by caution ahead of the July Politburo meeting and the upcoming initial public offering of ChangXin Memory Technologies (CXMT).

Recent Market Activity

Trading data from Chinese markets showed mixed signals in the period between July 15 and July 22. While equity futures turnover saw an increase, other key metrics declined, according to the report.

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• A-share turnover fell 7% to 2,677 billion yuan.
• ChiNext turnover decreased 6% to 667 billion yuan.
• Margin transaction outstanding also declined by 6% to 2,729 billion yuan.
• In contrast, equity futures turnover rose 8% to 734 billion yuan.

The firm's proprietary sentiment indicator, the weighted MSASI, also decreased by 7 percentage points to 37% during this period. Meanwhile, consensus earnings estimate revisions remained negative but showed a slight improvement from the previous week.

Capital Flows and Investor Sentiment

Despite the varied trading data, capital continued to flow into the market from mainland China. Southbound net inflows through the Stock Connect program totaled $1.6 billion between July 16 and July 22.

This brings the month-to-date total to $11.1 billion. However, year-to-date inflows of $46.6 billion represent just 46% of the amount recorded during the same period last year, indicating a more measured investor stance in the current year.