Morgan Stanley – “Buy Chinese Stocks”

Published on Author taylor

Morgan Stanley is backing its buy recommendation on Chinese stocks. Morgan Stanley feels that a significant market disruption is highly unlikely considering it’s the world’s second largest economy. The consumption and services are bigger than officially reported, and thus giving the economy more room to absorb the slowing productivity growth. The government’s reforms of financial resources will help policy makers transform the economy without triggering a debt crisis.

China is approaching a “Minksy Moment,” a term to explain an asset collapse following the exhaustion of credit expansion. The credit expansion remains bullish. “The valuation discount for the Chinese market may be too steep as the risk of a market disruption is minimal in China, according to analysts.”

Surprisingly, service industries accounted for 46 percent of the economy last year. This indicates the government’s strongly manipulating the economy. I wonder if China will catch up to the U.S. in regards to service industries, where the U.S. economy is 90 percent services.


7 Responses to Morgan Stanley – “Buy Chinese Stocks”

  1. I think if the state were to continue to decrease its control over the economy it would lead to an increase in the services sector of China’s economy. Greater freedom to engage in entrepreneurial activity and to exercise creativity in doing so would entice more individuals to offer novel services to the public. Also, less state control of the banking system would make it easier for such entrepreneurs to get funding for their service organization ideas.

  2. If I recall correctly, I think we saw a chart today showing the increasing trend of service industries in China (or was it Beijing). The service industry is likely to grow more and faster in China as more and more workers migrant to the urban areas. I am not sure if it will go up the U.S. level, but it will certainly play an important role in the Chinese economy.

    • The service sector already outpaces the manufacturing industry in China, and yes–it is growing more quickly. Once transnational economies have come into equilibrium, those countries with the richest natural resources (i.e. the comparative advantage) will have the least service-based economies.

  3. The growth of a service sector of the economy is a reflection of a modernized capitalist economy, as has occurred in the United States. Vital to the growth of this service economy is not just foreign companies but the rise of domestic Chinese companies that hold several competitive advantages.

  4. True, but I guess the question is whether or not the domestic companies can effectively hold a competitive advantage over foreign competitors. Though Chinese policy certainly works in their favor.

    • To repeat a comment on an earlier post (I don’t remember which), as an economist I do not know what “competitive advantage” means. And in any case in services – haircuts, hospitals, cleaning services, taxis and buses, on and on – there are few or no multinational enterprises in any country.

  5. In regards to domestic advantage, I recall Professor Smitka discussing the recent ascendency of these new domestic Chinese companies which better enables them to adapt to a rapidly modernizing economy as opposed to an older, more traditionally structured foreign company that is less flexible.