Morgan Stanley predicts mild gains in China stocks in 2026 as blistering rally cools

China’s stocks will post moderate gains in 2026, maintaining momentum after a torrid run-up that placed them among the world’s best performers this year, according to Morgan Stanley.

The MSCI China Index, a gauge of the nation’s major companies trading both domestically and overseas, could finish at 90 by the end of next year, implying a 3.4 per cent gain from its current level, analysts led by Laura Wang at the US investment bank said in a report over the weekend.

Morgan Stanley said its year-end target for the Hang Seng Index was 27,500 and that for the CSI 300 Index of Chinese onshore stock was 4,840, suggesting gains of 3.5 per cent and 4.6 per cent, respectively, from current levels.

“Our new December 2026 index price base-case targets suggest marginal low-single-digit upside, consistent with our view that current market momentum will be sustained instead of breaking for significant new highs,” Wang said.

Profits for Chinese companies would rise by 6 per cent next year as deflation lingered, and growth could accelerate to 10 per cent in 2027, as the world’s second-largest economy was expected to reverse the deflationary trend in the second half, the report said. The MSCI China Index was expected to trade between 12 and 13 times earnings, barely budging from current levels, as the tentative China-US tariff truce and expectations about interest-rate cuts by the Federal Reserve supported the valuations, it said.

Investors should adopt a bottom-up and company-specific approach to stock picks in 2026, Morgan Stanley said. It cited as examples tech names with innovation capabilities that aligned with the goal of tech self-reliance in the nation’s five-year plan, as well as high-dividend stocks that could ride out market volatility.