Morgan Stanley Fund: A-Shares and H-Shares Remain at Mid-to-Low Valuation Levels

Morgan Stanley Fund analysts believe that A-shares and H-shares currently remain at mid-to-low valuation levels, with earnings transitioning from a bottoming-out phase to a recovery-driven pricing phase. Structural opportunities exist in allocating to mid-to-high-end manufacturing sectors based on dividend and cash flow factors.

Given the moderate core inflation, recovering profit margins, and low correlation with U.S. dollar-denominated assets, RMB-denominated assets offer both risk diversification and resilience against market disturbances, steadily enhancing their potential in global asset allocation.

In the commodities market, central bank gold purchases continue, and declining real interest rates support bullish drivers. Silver, with its low inventory and stronger industrial demand elasticity, presents higher volatility risks due to short-term trading structures. Meanwhile, rising inventories and non-OPEC supply flexibility suggest oil prices will likely remain range-bound (Brent crude at approximately $58–$63), making tactical timing based on crack spreads and inventory trends more favorable than pure beta allocation.

Morgan Stanley Fund also notes that amid moderate rate cuts and declining real interest rates, 5-year U.S. Treasuries and agency mortgage-backed securities offer attractive yields and liquidity, potentially ranking as the highest-performing fixed-income assets currently.

Given the concentrated gains and high valuations in U.S. stocks, volatility may rise, necessitating diversified asset allocation to stabilize portfolio volatility while increasing exposure to cash flow and quality factors. A shift toward concentrated tech growth exposure should wait until earnings breadth expands significantly.

With the narrowing U.S.-Europe 2-year yield spread and a medium-term weakening U.S. dollar, increasing allocations to emerging markets and cyclical assets—those with stable current accounts, well-anchored inflation, and benefiting from inventory and capital expenditure cycles—is more advantageous.

Under the Bank of Japan’s gradual rate normalization and high hedging costs, the yen remains a funding currency. Directional long positions should only be reassessed if policy shifts significantly exceed expectations and yield differential costs decline.