Morgan Stanley Cuts Chinese Stock Rating After 7.5 Years Overweight

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Morgan Stanley on Thursday slashed its rating on Chinese stocks to equal weight, after being overweight the country's equity market for almost 7.5 years. "It is probably fair to say that we are known in the market for being bullish China -- some might say perma-bulls -- so for us this is a big call," the analysts said. "Dramatic recent outperformance has led to a deterioration in absolute and relative valuations and a technically overbought situation," they explained. They also said there's a lack of improvement in the underlying macro-economy as well as disappointment with earnings revisions. "However, China still scores relatively highly versus EM peers for factors such as currency, the level of trailing [return on equity] and funds flows," the analysts said. Morgan Stanley downgraded Russia to underweight from equal weight, while lifting Taiwan stocks to overweight from equal weight.

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