China A-Share Market Sentiment Declines Amid Slowing Trading Volume and Economic Uncertainty

Investor sentiment in China's A-share market declined over the past week as trading volume slowed and macroeconomic uncertainties loomed, according to a note from Morgan Stanley. The investment bank said its weighted and simple Market Sentiment and Activity Score Index (MSASI) dropped by 6 and 8 percentage points, respectively, to 67% and 56% as of December 25. This reportedly reflects weaker enthusiasm compared to the prior week.

The bank explains that the average daily turnover for ChiNext, A-shares, equity futures, and Northbound trading fell by 16%, 17%, 12%, and 27%, respectively, highlighting a significant pullback in activity. \“Equity market could be bumpier with a deflationary environment, downward earnings risks, more hawkish Fed tone and CNY depreciation pressure,” wrote the bank. Morgan Stanley emphasized the impact of China’s subdued macroeconomic backdrop, noting that policymakers are planning to issue RMB 3 trillion ($411 billion) of special treasury bonds in 2025 to bolster the economy. This is said to represent a significant increase from RMB 1 trillion issued in 2024.' The plan would be an increase from this year’s Rmb1tn and be used to support consumption and investments as well as recapitalizing large state banks,' the analysts explained. They note that Southbound trading, however, provided a bright spot, with net inflows of $3.1 billion during the week, marking 42 consecutive weeks of positive inflows. Year-to-date net inflows now stand at $100.5 billion. Amid these dynamics, Morgan Stanley advises investors to focus on'dividend yield plays and earnings certainty' to navigate the volatile environment. They believe the broader outlook remains cautious as China grapples with an economic slowdown and evolving global monetary policy

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