Morgan Stanley’s wishful thinking strategists have recently said in an event that signs of a bottom in China’s economic slowdown could bring investors back into the market, with cheap historical valuations presenting an “exciting entry point.” But on the “bear camp”, Bofa ML’s David Cui wrote the following to clients regarding Chinese equities (via Business Insider):
“… If our view is right, HSCEI may test the Oct 2011 low (some 15% downside from here) in the coming months, especially if Europe doesn’t stabilize. However, if contrary to our expectations, the government decides to stimulate aggressively again, we may see some 20-30% bounce for MSCI China, more so in investment driven sectors,followed by a severe sell-off – after all, the last stimulus has not had a lasting positive effect on the market.
…If there is another round of significant stimulus, after a rally that may last for a few months, we expect the market to be sold off severely, way pass their past trough valuations. Our view is based on the market experience after the last round of major stimulus and our belief that any major stimulus will compound China’s imbalance problem, not mentioning even more heightened financial system risks. This, in the long term, is a worse scenario than living with immediate lower growth in our opinion.”