China Outperforming in a Volatile Market – What‘s Next?

研报英文原文证据摘录

China Outperforming in a Volatile Market – What‘s Next?

Idea

July 9, 2026 12:01 AM GMT

Morgan Stanley Asia Limited+MChina Market-Wise | Asia Pacific Laura Wang

Equity Strategist

China Outperforming in a Laura.Wang@morganstanley.com +852 2848-6853

Volatile Market – What's Next?

Funding short unwinding and southbound flows helped the HK

market regain momentum. Going into August, we expect a

further improved setup for a better recovery in the market. Our

extreme UW position suggests gradual accumulation now.

Funding short unwinding and southbound flows have supported China's latest

outperformance: Hong Kong and China have outperformed regional and global

peers over the past week, while most other markets saw a sharp rise in volatility. In

our recent marketing feedback report, we highlighted rising interest in Chinese

equities among global investors, thus we anticipate a gradual reallocation into the

market in coming months.

However, we do not view the recent outperformance as evidence of foreign inflows

rushing back into the China market. Instead, we believe it primarily reflects: (1)

funding short unwinding – global investors have told us that Hong Kong and China

have served as funding shorts for increased allocations to Korea, Taiwan, and Japan.

The recent correction in those markets has significantly reduced this pressure on

China; and (2) continued southbound inflows, which have provided a stable source

of liquidity as the global risk appetite has weakened.

Looking forward, we reiterate that late July/August will be critical for a

sustainable China market recovery. We have been highlighting that the Hong Kong

market is set up for a meaningful recovery going into August (see our mid-year

outlook), given 1) 2Q results for e-commerce confirm the peaking-out of price war