Morgan Stanley Reports Growing FOMO (Fear of Missing Out) on China’s AI and EV Advancements
International investors are showing renewed interest in Chinese equities as the country demonstrates technological progress in artificial intelligence, electric vehicles, and robotics, according to a recent Morgan Stanley report. The shift comes as global funds seek portfolio diversification while China’s stock markets show strong year-to-date performance.
Key Market Performance Indicators
As of June 10 closing:
- Hang Seng Index: +20% YTD
- Hang Seng Tech Index: +20% YTD
- Hang Seng China Enterprises Index: +20% YTD
Morgan Stanley notes this rally coincides with China’s visible advancements in restricted technology sectors, causing investors to reconsider previous skepticism.
The Changing Investment Thesis
From Caution to Opportunity
Laura Wang, Morgan Stanley’s Chief China Equity Strategist, identifies several paradigm shifts:
- Tech breakthroughs: DeepSeek’s AI developments and robotics/EV progress easing “tech decoupling” concerns
- Under-allocation gap: Global EM funds hold 2.4% less China exposure than MSCI benchmarks
- Preferred markets: Hong Kong listings and ADRs favored for their concentration of AI/new consumer plays
“FOMO is re-emerging among global investors,” Wang wrote, highlighting that China’s 29% MSCI EM weighting contrasts with only 26.6% actual allocation – the largest underweight observed.
Institutional Money Flows
Xu Guanghong, CITIC Securities’ Chief Overseas Strategist, confirms:
- Early signs of regional fund inflows (global/US/Pacific-focused) into Hong Kong markets
- Expected continued southbound capital through second half 2024
- Tech giants’ 2025 earnings estimates appear resilient
Sector-Specific Opportunities
High-Conviction Plays
Morgan Stanley’s analysis suggests:
Hong Kong market advantage:
- Hosts majority of China’s AI/new consumer large-caps
- Attracts dual-listed A-shares (e.g. Midea’s 2024 Hong Kong IPO)
Tech narrative potential:
- AI infrastructure build-out
- EV/humanoid robotics commercialization
- Policy-supported emerging growth sectors
Nomura Orient International Securities projects Chinese equities will outperform global markets in H2 2024, citing government support for high-growth tech sectors as a key differentiator in volatile conditions.
Market Implications
Rebalancing Potential
With $1.6 trillion tracked to MSCI EM indexes, closing the 2.4% China underweight could theoretically drive:
- ~$38 billion in passive inflows
- Potentially larger active manager repositioning
Risk Considerations
While sentiment improves, investors remain mindful of:
- Geopolitical tensions affecting tech access
- Property sector headwinds
- Currency volatility
The reassessment reflects a nuanced pivot – not blanket bullishness, but selective recognition of China’s evolving tech competitiveness and valuation appeal after years of underperformance. As Wang notes, this marks “the early stages of a recalibration rather than a rush.”
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