Morgan Stanley downgraded China to slight “underweight” from “equal weight” in emerging markets, with analysts noting efforts to revive the economy and a Republican sweep of Congress and the White House could significantly impact markets. “We expect even stronger headwinds on corporate earnings and market valuation in the coming months,” Morgan Stanley analysts said in a note dated Nov. 17. Goldman Sachs is more bullish on mainland stocks, but trimmed its recommendation on Hong Kong shares to “underweight” from “market weight.” “Although valuations are not demanding, Hong Kong does not offer much economic or earnings growth,” Goldman analysts said in an Asia-Pacific portfolio strategy note published on Sunday. “The property and retail sectors remain under pressure and the economy may not benefit as much from policy support in China as it previously has, given China’s focus on bolstering the domestic economy.” Both banks expect the yuan to weaken, with Goldman forecasting a dollar/yuan exchange rate of 7.5 at the end of next year and Morgan Stanley 7.6.
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