Morgan Stanley Fixed Global Macro Forum China Policy Shift – Is T...-110540822

Morgan Stanley Global Macro ForumChina Policy Shift – Is This a Game-Changer?September 30, 2024Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.+= Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.Morgan Stanley ResearchGlobalVishwanath Tirupattur – Chief Fixed Income Strategist | StrategistMORGAN STANLEY & CO. LLCRobin Xing – Chief China EconomistLaura Wang – Head of China Equity Strategy | Equity StrategistMORGAN STANLEY ASIA LIMITED+Javier Martinez de Olcoz Cerdan – Head of European Autos Research | Equity AnalystMORGAN STANLEY EUROPE S.E., MADRID BRANCH+Amy Gower – Metals and Mining Commodity Strategy | Commodities StrategistMarina Zavolock – Chief European Equity Strategist | Equity StrategistMORGAN STANLEY & CO. INTERNATIONAL PLC+September 30, 2024 12:31 PM GMT2Robin XingChief China EconomistThe unprecedented September Politburo economic meeting shows an increased sense of urgencyPBOC easing package beat market expectationsBeijing’s Policy Pivot: Reflation Now a Serious TargetSource: Government websites, Morgan Stanley ResearchOur proprietary Social Dynamics Indicator is approaching the previous policy pivot thresholdsPolicy catalysts aheadModest Fiscal Stimulus Seen in Three Months; Bazooka Unlikely Without Greater Social RisksSource: CEIC, China Labor Bulletin, Morgan Stanley Research; Note: Our quarterly proprietary Social Dynamics Indicator is a composite z-score index on wage growth, job sentiment, number of labor incidents, and Engel‘s Coefficient.Policy pivot strengthens our base case of QoQacceleration in 4Q24-1Q25But reflation remains a long and drawn-out battleModest QoQ Growth Improvement, but Sustainable Reflation Remains DistantSource: CEIC, Morgan Stanley Research estimates6Laura WangHead of China Equity Strategy12-month forward P/E: MSCI China vs. MSCI EM12-month forward P/E: CSI 300 vs. MSCI ChinaMSCI China Trades at a 20% Discount vs. MSCI EM; CSI 300 Trades at a 18% Valuation Premium to MSCI China; Sustainable Re-rating Hinges on Earnings ImprovementSource: Datastream, Bloomberg, MSCI, I/B/E/S, Morgan Stanley Research; Note: Data as of September 26, 2024.Source: Datastream, Bloomberg, MSCI, I/B/E/S, Morgan Stanley Research; Note: Data as of September 26, 2024.History of Chinese equity market quarterly earnings surprises by number of companies12-month forward consensus earning