From October 20-22, along the banks of Shanghai's Huangpu River, the 2026 Sustainable Global Leaders Conference returns once again. Nobel laureates and Turing Award winners will take the stage to discuss the future of technology and trends, and there will even be a live dialogue between网红 professors who "rescue" people from anxiety and the era of involution — Macfarlane and Xiang Biao!

Limited seats available, first come first served. Let us embark together on the journey of sustainability! [Click to Register] For stock trading, look to the Jin Qilin analyst research reports — authoritative, professional, timely, comprehensive, helping you uncover potential thematic opportunities! Source: Liuli Investment Report. On October 12, Morgan Stanley's Chief China Economist Xing Ziqiang, in his weekly closed-door meeting, discussed factors that could lead to a market turning point this autumn, covering China's recent policy mix, current US macroeconomic factors, and potential impacts on AI infrastructure.

He noted that entering mid-October, global markets remain in a relatively sensitive period, with concerns about an autumn turning point. Around the National Day holiday, China rolled out a comprehensive package covering fiscal policy, quasi-fiscal policy, financial policy, and real estate policy; however, the purpose of this macro policy fine-tuning is to protect the baseline, not to engineer a major reversal.

According to his estimates, adding up these measures, Q4 GDP year-over-year growth is expected to stabilize at around 4.4%-4.5%, bringing the full-year growth target to approximately 4.5%. However, Xing Ziqiang specifically pointed out that although the scale of mortgage rate subsidies targeting households this time is relatively small, it breaks the conventional mindset, meaning that the fiscal authority is using its own balance sheet to directly subsidize household balance sheets — an important ice-breaking signal.

On the US side, the economy is currently being held up mainly by massive fiscal deficits and wealth transfer effects, barely sustained under the impact of high interest rates. The market still seems immersed in a harmless illusion that "high interest rates are nothing to worry about." However, the K-shaped divergence among consumer groups is severe, with certain fractures appearing in lower-tier consumption; the impact of high interest rates has already begun to spread to the real economy.

The upcoming midterm elections and local political battles could bring some pain to AI-related data center capital expenditures. Additionally, Morgan Stanley's Chief China Strategist Wang Ying stated that adjustments were made to the Hong Kong China Focus List, removing MiniMax and replacing it with Hengrui's Hong Kong-listed shares; Morgan Stanley believes that in humanoid robotics and biopharmaceuticals, China has already achieved a world-leading advantage.

On capital flows, foreign allocation to all of China saw a net outflow of $1.8 billion in September. As for whether the market has bottomed out and is due for a reversal? She stated that this still needs to be considered comprehensively in light of fundamentals, valuations, overall earnings growth, and changes in global liquidity. But one particularly intuitive indicator is — the MSCI China Index, which at historically extreme times has consistently traded at around 8 times, at which point the market shows a relatively clear inflection point.

Currently, the MSCI China Index trades at 10 times forward price-to-earnings, which is a relatively fair valuation, but not necessarily at a particularly cheap level. The Liuli Investment Report has compiled selected highlights from the Morgan Stanley closed-door meeting as follows:

The market is in a sensitive period with concerns about autumn turning point factors

Entering mid-October, global markets remain in a relatively sensitive period, with concerns about an autumn turning point. On the surface, the grand narratives from earlier market phases are still ongoing, US confidence in AI still appears firm, and China has gradually rolled out some policy fine-tuning to support the economy before Golden Week.

Of course, market feedback, especially Hong Kong stocks during Golden Week, has been relatively weak. Today we will focus on whether there might be factors this autumn that could trigger a turning point, including the role of China's policy support and what specific tools can still be deployed; second is the overseas environment, particularly what US high interest rates and the midterm elections mean for its economy and confidence in the AI narrative.

The purpose of government macro policy fine-tuning is to protect the baseline, not a major reversal

We have emphasized that over the past six months or so, China has introduced various micro-measures that each make sense for individual entities and implementation levels, but when combined, they have created a de facto pro-cyclical macro tightening effect. In particular, the actual fiscal deficit appears to have slightly tightened from the second half of last year to now, creating a certain risk of a pro-cyclical deleveraging trap.

I think policymakers have also seen this, so around the National Day holiday, a comprehensive package covering fiscal policy, quasi-fiscal policy, financial policy, and real estate policy was rolled out. This package includes the mortgage interest subsidies we had long called for, targeted financing support for the "six networks" including power and computing infrastructure, and activation of 3 trillion yuan in unused local government bond general quotas to allow localities to ease temporary fiscal pressures.

But overall, this is certainly not a flood-style major policy reversal, but rather a necessary fine-tuning. Its scale is relatively moderate, and the overall purpose is to protect the baseline, not to engineer a major reversal.

The current policy mix is temporarily insufficient to break the deflation risk

We estimate that adding up these measures, Q4 GDP year-over-year growth is expected to stabilize at around 4.4%-4.5%, allowing the full-year growth target to be achieved with some margin, reaching approximately 4.5%. Although the scale of mortgage rate subsidies targeting households this time is relatively small — only for new homes, with price caps — and the annual subsidy amount might only be around 10 billion yuan, it has nonetheless broken the conventional mindset, and we highly endorse the direction. It means the central fiscal authority is using its own balance sheet to directly subsidize household balance sheets — still a relatively important ice-breaking signal.

However, these measures may temporarily be insufficient to break the cycle of deflation and deleveraging risk. Therefore, there needs to be deep awareness of the risk of nominal GDP facing deflation next year.

The impact of US high interest rates has begun to spread to the real economy

But overseas conditions are also facing significant uncertainty this autumn. US market interest rates have risen substantially over the past six months, especially Treasury yields. However, the market still seems immersed in a harmless illusion that "high interest rates are nothing to worry about."

US nominal GDP growth is still at 6%, credit spreads remain relatively narrow, and a 10-year Treasury yield above 5% doesn't seem like a big deal. But this resilience, as we understand it, has a certain fragility — it is being propped up by extreme K-shaped divergence.

A portion of overall US consumption is completely immune to current high interest rates, but the reason behind this is actually extreme K-shaped divergence. Our AlphaWise survey, based on nearly 2,000 American consumer samples, reveals some facts in this regard. The US relies on wealth transfer and inheritance effects, which has led to people currently being insensitive to so-called interest rate increases.

Nearly 20% of respondents have actually received inheritances and wealth transfers in recent years. This proportion is especially high among high-income households earning over $100,000 annually.

More than half of this real wealth transfer has been invested in the stock market, with close to 40% used for buying homes. In other words, the AI-led booming growth reflected in US stock markets, along with the transfer of wealth from the older generation to the younger generation, has given America's high-income class relatively thick bulletproof vests and ample health, offsetting the impact of high interest rates and enjoying the wealth effect.

But beneath the surface, the consumption and consumer credit of America's middle- and low-income groups have been torn apart by high interest rates. More than half of Americans expect the economy to deteriorate in the next six months, and in particular, the recent energy shock has caused diesel prices to surge, significantly raising the cost of living for middle- and low-income groups — this is the K-shaped divergence in consumption.

This characteristic is also reflected in financing markets. In financial markets, high-quality investment-grade bonds like IG (investment-grade bonds, rated BBB- and above) can still hold up. But lower-tier credit, like CCC-rated high-yield bonds, has seen default probabilities already surging and spreads rapidly widening. So the impact of high interest rates has already begun to spread to the real economy.

US midterm elections are approaching, and AI infrastructure may face grassroots resistance

In this process, the challenge of midterm elections will be added. Will the midterm elections disrupt current confidence in investing in the AI super-cycle? After all, global AI-related credit financing in September already showed significant slowing. Global credit financing was approximately $23 billion in September monthly data, a new low for the year.

So many people worry whether capital markets are losing some patience with AI. This may be the real political and physical wall that AI has recently encountered. For AI infrastructure, the real battlefield may be at the state and local levels. Because data center construction requires local grid connection permits, electricity price approvals, water resource quotas, and local tax incentive support.

Nearly 80% of the approval authority rests with US state governors, state legislatures, and state public utility commissions (PUCs). Our AlphaWise survey found that the American public on the surface is not averse to AI technology overall, but once the question is made concrete — "Would you support building a data center within 10 kilometers of your home?" — support instantly plummets to negative 20%.

In other words, voters are actually worried that if a data center near their home consumes water, harms the environment, and competes for electricity, it will cause living costs to soar. So there is enormous grassroots resistance, which will affect votes. In the first six months of this year, more than 30 US states have proposed over 300 restrictive bills targeting data centers, and several states have even directly withdrawn AI-related tax incentives.

So in this midterm election, local and state-level politicians, in order to cater to voters, are highly likely to set up numerous obstacles regarding data center approvals and power allocation. Therefore, this autumn both China and the US macro environments have new factors. China is now rolling out some targeted fine-tuning to defend the Q4 GDP baseline.

Morgan Stanley Chief China Strategist Laura Wang Ying: China has achieved globally leading advantages in humanoid robotics + biopharmaceuticals

Last week we published two relatively important reports. First, our Hong Kong China Focus List underwent a stock change last week, removing MiniMax. It was the only large-model exposure in the stock pool, and we believe short-term volatility remains relatively high, so we removed it, replacing it with Hengrui's Hong Kong-listed shares in our stock pool.

Because for healthcare, especially some companies with relatively better future outlooks within it, our overall view remains relatively optimistic. As we have told everyone many times before, when communicating with global investors, there are two sectors or sub-sectors that global investors have already公认 recognized as areas where China has achieved absolute world-leading advantages.

One is humanoid robotics, and the other is biopharmaceuticals. For humanoid robotics, most companies currently have relatively low overall shipment volumes. For some institutional investors with larger capital bases, the options available in this direction are still relatively limited.

But in biopharmaceuticals, it is also globally recognized by investors that China has already achieved absolute global advantages. It can even be said that without China's R&D capabilities, the development of the entire global biopharmaceutical sector would be greatly affected. So in these areas, we believe geopolitical risks may be relatively more controllable.

At the same time, previously, companies may have been affected by the global interest rate environment. But going forward in the medium to long term, we believe their development prospects remain very broad.

Foreign capital saw $1.8 billion net outflow in September

The second report, as of the end of September, is our monthly publication on capital flows and global institutional investors' allocation to the Chinese market. In September, we saw foreign allocation to all of China further in a net outflow state. Overall, we saw a net outflow equivalent to $1.8 billion.

In September alone, we saw both active and passive funds in a net outflow state. This signal is currently judged not to be a relatively optimistic one.

Entering Q3 earnings season, recommend focusing on sectors with stable performance and strong earnings certainty

We are about to enter the Q3 earnings season, and we still recommend that everyone pay more attention to sectors with relatively stable performance and high certainty in earnings growth. You may have had a feeling before that trading these sectors is more about trading sentiment, narratives, and herd effects.

But actually, when you trade these sectors, you are simultaneously trading genuine fundamentals. So we suggest that everyone not be overly resistant to these high-growth sectors — we believe opportunities still exist. Of course, we also recommend allocating to relatively stable companies in dividend-related areas, including those in our focus list, which can help smooth out many unnecessary market fluctuations.

Has the decline run its course? MSCI Index is in a fair valuation range

A-shares have also experienced relatively significant adjustments over the past period, and recently some clients have been asking — after so much adjustment, is it about done? We have always advised against concluding that it's about done simply because prices have fallen a lot. We believe it's still necessary to consider fundamentals, valuations, overall earnings growth, and changes in global liquidity comprehensively.

If we were to give a particularly intuitive indicator, we of course also frequently look at valuations. Or rather, whether many uncertainties and negative factors have already been fully priced in by the market? Currently the MSCI China Index still trades above 10 times forward price-to-earnings, at approximately 10.2 times.

Historically, the MSCI China Index over the past 20 years, at relatively extreme times, has consistently traded at around 8 times, at which point the market shows a relatively clear inflection point. Of course, over this period, some new quality productivity sectors, such as information technology and high-end manufacturing-related sectors, have seen their weight gradually increase. So should we necessarily wait for the MSCI China Index to fall to 8 times before buying? We are not saying we should make such an absolute judgment.

But it is not as everyone feels — as if after falling for a long time, it must be near a reversal point? Looking now, the MSCI China Index trading at around 10 times should be considered a relatively fair valuation. Correspondingly, we judge this year's earnings growth to be approximately 6 percentage points. So from this perspective, the current valuation is a relatively fair valuation, but not necessarily at a particularly cheap level.

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