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.