Exclusive Interview with Morgan Stanley's China Chief Equity Strategist Wang Ying: Global Active Capital Flows into China Turn Positive Since the Beginning of the Year; China's Assets Demonstrate Resilience Amid Middle East Turmoil

Ask AI · DeepSeek: How is it reshaping global perceptions of China’s AI competitiveness?

Since this year’s Spring Festival, the topic of “Cool China” has attracted worldwide attention—from efficient infrastructure and AI large models to innovative medicines and humanoid robots, China’s technological and industrial strengths are changing Western perceptions of China.

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In this context, is the valuation logic of Chinese assets being restructured by global capital? How do foreign investors view the investment potential of A-shares and Hong Kong stocks? Which industries and themes will become core tracks?

Recently, Morgan Stanley China’s Chief Equity Strategist Wang Ying was interviewed by the Daily Economic News (NBD). Looking back from the March 2026 timeline, Wang Ying’s view on Chinese assets has shifted from early caution and risk awareness to optimism and confidence for 2025–2026. The core logic has also shifted from macro narratives to micro-company fundamentals and profitability. Previously, she predicted that by 2026, more foreign capital would return to China, and believed that increasing active fund allocations to Chinese assets was only a matter of time.

“Cool China” Sparks Overseas Debate; China’s Stock Market Narrative Has Significantly Changed

NBD: Recently, the “Cool China” topic has sparked global discussion, highlighting high-efficiency infrastructure, AI large models, and humanoid robots as China’s new calling cards. Does this represent a “paradigm shift” in global perceptions of China?

Wang Ying: The “Cool China” phenomenon certainly draws attention, but the paradigm shift in global understanding of China actually started earlier. The most notable turning point was around February 2025, during the Chinese Lunar New Year, when a strong acceleration process was initiated. If we consider what catalyzed this change, we believe the so-called DeepSeek moment is a very important milestone.

Before that, since late 2022, AI has been recognized as a potentially crucial variable affecting global investment, economy, technology, and the future of human society. Prior to DeepSeek, almost the entire world believed the U.S. was the undisputed leader in this field. Due to chip technology restrictions and macroeconomic pressures, global investors generally did not see real opportunities for China in AI. Against this backdrop, the emergence of DeepSeek has made the world re-recognize China’s competitiveness in cutting-edge high-tech fields, and its ongoing deep involvement and leadership in many areas—including cost control and efficiency improvements—have become evident.

Therefore, in a multipolar world, even from a diversification perspective, paying more attention to China outside the U.S. is natural. Since the DeepSeek moment last year, China has introduced new developments in AI large models, with various players racing to lead, often topping global download charts. These rapid advances, along with progress in robotics, embodied intelligence, automation, biotech, drug R&D, and our traditionally strong sectors like high-end manufacturing, electric vehicles, and batteries, have fundamentally changed global perceptions of China and helped maintain that view.

The “Cool China” phenomenon has been fueled not only by China’s efficient infrastructure, advanced AI technology, and stable social environment but also by many other factors. Years of deep cultivation in AI, high-end manufacturing, and entire industry chains, a large pool of engineers, the penetration of mobile internet technology, and data accumulated through mature internet ecosystems all contribute to forming closed loops of computing power, algorithms, scenarios, and data. These enable rapid deployment and popularization of cutting-edge technologies across industrial, commercial, medical, cultural, educational, and private consumer sectors.

While technological progress has advanced rapidly, the narrative logic of China’s stock market has also changed significantly. Global capital valuations of Chinese assets have shifted accordingly. For example, the MSCI China Index’s forward 12-month P/E ratio has recovered from its 2024 low of over 8 times to a high of 13 times in 2025.

We have consistently been telling the China story to global investors, reminding them that the valuation logic of Chinese stocks has fundamentally changed. They should shift focus from top-down fiscal stimulus and real estate support policies to themes centered on innovation and R&D, such as AI, high-end manufacturing, and biotech, which offer structural investment opportunities.

Chinese Assets Show Resilience Amid Middle East Turmoil

NBD: With increasing geopolitical instability in the Middle East and elsewhere, how do you view China’s assets as a “stabilizer” in this “turbulent world”?

Wang Ying: After the escalation of geopolitical tensions in Iran and the Middle East at the end of February, we observed that Chinese stock assets demonstrated resilience compared to global markets. Specifically, since March, the MSCI China Index has fallen only 2%, and the CSI 300 index of A-shares has declined less than 1%. Meanwhile, the S&P 500 dropped 3%, and the MSCI Emerging Markets Index fell 7.4%.

This indicates that geopolitical uncertainties will continue to influence market pricing and volatility for some time. Increasing allocations to Chinese stocks can effectively improve portfolio Sharpe ratios and risk-adjusted returns.

Compared to Hong Kong stocks, I prefer A-shares. Given the current international situation, I believe A-shares’ resilience will be especially prominent because Hong Kong’s market, linked to the HKD and USD, tends to experience significant outflows when global risk appetite declines and liquidity tightens.

Global Active Funds Begin Net Inflows into Chinese Assets

NBD: What is the current situation regarding foreign capital allocations to Chinese assets?

Wang Ying: Since the beginning of this year, we have seen a very encouraging change—net inflows into Chinese assets by global active mutual funds. Passive funds started experiencing continuous inflows after the “9.24” rally in 2024, but active funds, which tend to have longer investment horizons and more cautious allocation adjustments, only began net inflows in January this year.

After March, due to sudden shifts in international geopolitical tensions, some capital outflows occurred. It’s important to note that this is not unique to Chinese stocks; global risk assets generally faced reduced risk appetite and lower allocations. Whether this trend will persist long-term depends on geopolitical developments and macroeconomic conditions, which require close monitoring.

In terms of positioning, although global investors currently maintain relatively low exposure to Chinese stocks, mainly through structural adjustments, there is significant potential for increased allocations. Amid geopolitical turbulence, China’s resilience continues to stand out. Since the start of the year, Asia-Pacific and emerging markets benefited from a super cycle in storage and chips, leading to substantial gains. Currently, Chinese valuations are reasonable, with better growth prospects.

Recently, assets characterized by Heavy Asset, Low Obsolescence (HALO)—companies with substantial physical assets and low turnover—have performed well globally. The “physical as ark” philosophy is being reflected in foreign investors’ rebalancing.

We see more capital flowing into sectors with tangible assets, while industries sensitive to high oil prices or disrupted by AI—such as energy, raw materials, machinery, semiconductors, and even real estate—are more cautious. Since the beginning of the year, these sectors have shown strong performance, but sectors like internet and software, which face AI-driven disruption, have experienced more volatility.

Global Investors Agree China Has Reached Top Global Levels in These Fields

NBD: How do you view China’s medium- and long-term investment opportunities?

Wang Ying: Recently, in discussions with global institutional investors, we’ve heard many interesting feedbacks. They are generally surprised by China’s achievements in AI despite heavy technological restrictions, especially in cost reduction, efficiency, and commercial application prospects. They believe China’s data reserves, talent pool, and numerous real-world scenarios will further support development in this field. Beyond AI, global investors agree that China has reached top global levels in humanoid robots, automation, biotech, and drug R&D.

For the medium to long term, the core drivers of China’s asset performance include technological innovation, domestic demand recovery, and ongoing reforms. From a stock market perspective, macroeconomic stabilization and the revival of domestic demand should boost market confidence and encourage long-term allocations. The slowdown in real estate growth has reduced household wealth effects and dampened disposable income and job stability expectations, somewhat suppressing consumption. Improving this situation will expand domestic demand and stimulate related upstream and downstream industries. The direct result will be accelerated earnings growth at the index level, with listed companies becoming more profitable overall, leading to higher shareholder returns.

In specific sectors, based on HALO logic, materials, high-end manufacturing, and semiconductors are performing strongly. The early-year internet sector faced pressure mainly due to short-term competition in large language models, but overall, healthy industry development is expected to continue, with AI-related sectors remaining in focus. Additionally, China’s insurance industry combines defensive and growth attributes, with expanding demand for wealth management and personal protection, promising sustainable growth.

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