Morgan Stanley expects Chinese companies to see an improved profit outlook in the second quarter of 2026, citing encouraging first-quarter results, rising exports, and early signs of reflation boosting revenues [1, 2].
In the first quarter of 2026, companies in the MSCI China A Onshore Index that missed consensus profit estimates outnumbered those beating them by 12.5%, a notable improvement from the 23.2% gap recorded in the previous quarter [1, 2]. The firm noted Chinese enterprises have historically faced earnings shortfalls outside of tech stocks, leading to investor caution [2].
Morgan Stanley expects the profit environment to become more favorable after summer 2026, supported by capital expenditure cycles that will drive demand in capital goods subsectors [2]. Specific sectors such as AI data centers, battery equipment, and robotics are forecast to benefit from improving profit trends [2].
Recent regulatory adjustments in China's ecommerce market may help create a more rational competitive landscape, potentially reducing volatility for companies in that sector [2]. While exchange rate losses from RMB conversion may continue to weigh on profits, the impact is expected to lessen going forward [2].
Reflecting the more optimistic outlook, Morgan Stanley raised its target for the CSI 300 Index to 5400 points by the second quarter of 2027, up from a previous target of 4840 points set for December 2026 [2].
Morgan Stanley's strategists published their report noting the improving Q1 2026 results and positive Q2 profit outlook on May 12, 2026 [2].
