Morgan Stanley: A-share sentiment rebounds to 19%; Morgan Stanley sees a potential technical rebound but remains cautious

How far has sentiment rebounded?

As of 28 October, Morgan Stanley’s weighted A-share sentiment indicator, MSASI, had risen 10 percentage points from 21 October to 19%, but remained below the 22% technical rebound signal level; its one-month moving average was broadly flat at 17%.
The bank noted that historically, after sentiment fell below this level, the index saw a significant rebound over the following 1–2 months in most cases. It therefore sees potential for a technical rebound in A-shares over the coming months, while remaining cautious about the broader index’s upside.
MSASI combines 12 indicators of sentiment and market activity, including turnover, margin financing balances and earnings estimate revisions. Each indicator is first normalized against its own range over the preceding 100 days, then weighted using factors including historical correlations.

Compared with 21 October, average daily turnover on the ChiNext and A-share markets rose 14% and 9% respectively, to 443 billion yuan and 1.638 trillion yuan; stock index futures turnover was broadly flat at 470 billion yuan.
Over the same period, outstanding margin financing fell 2% to 2.39 trillion yuan, while the breadth of revisions to consensus earnings forecasts remained negative and deteriorated further. More active trading did not coincide with improvements in margin financing balances and earnings expectations.

Morgan Stanley maintained a relatively cautious stance after cutting its index targets in early September: a weakening domestic macroeconomic environment, uncertainty over global oil prices, bond yields and inflation, and liquidity concerns arising from large IPOs together contributed to the recent market pullback.
The bank prefers A-shares to Hong Kong equities because A-shares may benefit more from market-stabilization measures by the national team and offer greater exposure to artificial intelligence, advanced technology and innovative sectors; it believes these areas have stronger revenue and earnings growth.
Based on historical valuation ranges, the Hang Seng Index and MSCI China Index have around 10%–15% downside to their historical trough valuation of about 8 times forward 12-month earnings; as of 29 October, they traded at 9.5 times and 9.3 times respectively. The bank consequently favors selected structural opportunities over broad market exposure.

Some property indicators stabilized at the margin in September, but new and existing homes diverged: new-home sales across 65 cities fell 2% year on year, a narrower decline than the 5% drop in August; existing-home sales across 33 cities rose 9% year on year, above the 2% growth in August.
On prices, the National Bureau of Statistics’ measure of new-home prices across 70 cities fell 0.1% month on month in September, with the decline narrowing by 0.1 percentage points from August; existing-home prices still fell 0.3% month on month. Meanwhile, new listings of existing homes rose 11% month on month, new-home inventory rose to 31.9 months, and land sales value across 300 cities fell 20% year on year.
Morgan Stanley’s China property team expects new-home sales to remain sluggish in the fourth quarter of 2026. It sees recent targeted housing measures as unlikely to reverse the divergence between new and existing homes or materially improve developers’ sales and earnings outlook. As a result, stabilization in some indicators has yet to translate into a sustained recovery, and the domestic demand backdrop remains uneven.