Morgan Stanley warns against chasing China stocks rally as rebound may stall
- Market is flashing technical overbought signals, which could deter further buying by global quant funds, US investment bank says
- The 14-day relative strength index of the Hang Seng Index shows that stocks are technically overbought and due for a pullback
Investors should exercise caution while chasing Chinese stocks, among the best performers globally last month, amid technical signs the market is in overbought territory and global fund managers have already boosted their holdings, according to Morgan Stanley.
The gains in Chinese stocks will probably wane, and investors should approach with care at the current level, analysts led by Laura Wang at the US investment bank said in a report on Tuesday.
There was less urgency for overseas traders to rotate out of US and Japanese stocks now, with headwinds from geopolitical risks, rising bond yields and foreign-exchange markets subsiding, it said.
“We see near-term technical overbought signals, which could deter further buying by global quant funds,” Morgan Stanley analysts said. “Consumption and the housing market likely need more time to pick up, implying ongoing pressure on deflation and corporate earnings.”
