Morgan Stanley Says Hong Kong's Equity Selloff Is Far From Over

(Bloomberg) -- Don’t bother buying the dip in Hong Kong stocks.

That’s the view of Morgan Stanley strategists, who’ve just slashed their 12-month target for the Hang Seng Index by about 10 percent to 27,200 points. The new forecast implies a slump of 18 percent from the benchmark’s January peak, nearing a correction typically denoting a bear market. The gauge closed at 29,696 points Wednesday.

Rising interest rates, a weaker yuan and worsening U.S.-China trade relations are combining to threaten Asia’s economic growth and corporate profits, according to Morgan Stanley. While the strategists cut their targets on six other gauges in the region, Hong Kong looks especially vulnerable due to links with U.S. monetary policy and its companies’ reliance on China for earnings.

“We think the Hang Seng index is at risk of a further sharp drawdown near term,” strategists led by Jonathan Garner wrote in a note Wednesday. “Investors should focus in particular on this juncture at reducing exposure” to the city’s equities.

The Hang Seng Index rose 0.8 percent Wednesday, its first advance in five sessions, marking a brief respite from a selloff that has erased all its gains for the year. The yuan also snapped its steepest two-day loss since 2015 after policymakers set the daily fixing at a much stronger level than expected.

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