The likelihood of a new bull run in China's A-share market has increased as the country is believed to be capable of managing its debt problem and avoiding financial shocks, U.S. investment bank Morgan Stanley said in a report.
The bullish sentiment was based on its positive views about China's ability to rebalance its economy, address the issue of the rapid debt buildup, and promote key reforms to ensure the country achieves high-income status by 2027.
China's high level of savings and its strong net asset positions, both domestically and externally, provide adequate buffers against financial shocks, analysts at Morgan Stanley said in the report.
The U.S. bank said that the A-share market, which global investors have long had limited access to, can enter a new bull market as domestic investors rotate from property and bonds back into stocks. The bank forecast the benchmark Shanghai Composite Index will reach 4,400 points.
The index dropped slightly by 0.15 percent to 3,212.99 points on Wednesday, following a 3.5 percent rally in the past month.
But some analysts said that it is too early for investors to turn bullish toward A shares as it remains difficult to say whether the ongoing stabilization of the economic growth is sustainable.
"The recent rally of the equities market already factored in the improvement of the economy supported by the credit expansion," said Guo Yanhong, chief strategist at Founder Securities Co.
"It is too early for us to confirm that there is a solid economic recovery at the moment," he added.
Jiang Chao, an analyst at Haitong Securities Co, said that investors will likely see short-term trading opportunities in the Chinese financial market, as the economy is expected to stabilize and the inflation rate will likely drop below 2 percent in the coming three months.
"But risks may reemerge after June with the growing expectations of further U.S. interest rate hikes, the possible pickup in inflation and concerns over monetary tightening by the central bank," Jiang said.