Just like BNP Paribas Investment Partners, Morgan Stanley is no longer bullish on the Chinese stock market. Jonathan Garner, chief Asia & emerging market strategist at Morgan Stanley, has downgraded Chinese stocks for the first time in over 7 years, mostly referring to the weakest corporate earnings figures since 2009.

BNP Paribas had indicated earlier that it sold part of the Chinese stocks in its portfolio that were listed in Hong Kong. BNP was particularly driven by the rising margin debt on the Chinese mainland. BNP also pointed out the growing mismatch between share prices and the worsening economy.

Chinese Stocks

The experts of UBS Group are expecting that mostly policy makers will take action with regards to the margin debt issue. Asset managers from Macquarie Investment Management have expressed their concern regarding the fact that Chinese stocks have gone up much too quickly and much too strongly.

When a market is acting out like the Chinese market is today, no other subject is interesting in the eyes of Arthus Kwong, head of Asia Pacific equities at BNP, who manages 573 billion dollars globally. When nothing else matters, it is a negative signal and it makes Kwong paranoid.

The Chinese economy grew in the past quarter at the slowest rate since 2009. Stock investors have mostly taken the bad news, like unmet expectations on a large scale, as good news.

Obsessive Investors

The Shanghai Composite Index is up by more than 70 percent since the central bank raised interest rates on the 21st of November of last year. Bad news has been taken as good news, because investors believe that policy makers will take action in case of a slowdown.

Kwong feels that investors have become obsessive and they are only focused on the inflow of fresh cash. The massive run on Chinese stocks reminds him of the 2007 market peak. Kwong acknowledges that it is not ‘cool’ to tell people to be careful. The fundamentals make him worried, however, while the market is excited.