Morgan Stanley: China Equity Strategy - Launching China Best Business Models Version 2
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Morgan Stanley has launched China Best Business Models Version 2 (BBM V2), identifying 26 companies with sustainable competitive advantages designed to deliver benchmark-beating, risk-adjusted returns. Since 2023, the backtested portfolio has generated a cumulative total return of 101%, outperforming the MSCI China Index by 83%. Over a trailing twelve-month period, the outperformance reached 56%, supported by a three-year Sharpe ratio of approximately 1.2. The portfolio maintains an aggregate return on equity of roughly 17%, representing about 1.5 times the benchmark. It currently trades at a forward price-to-earnings ratio of 14.4 times and a price-to-book ratio of 2.5 times.
The updated framework introduces several enhancements, incorporating artificial intelligence exposure as a distinct stock-selection lens. Companies are categorized as AI enablers, adopters, or those structurally insulated from AI disruption. Additionally, the portfolio aligns with four major global themes: technology diffusion, future energy, a multipolar world, and social change.
The selection methodology integrates systematic quality and value assessments with geopolitical risk considerations. The portfolio also features active industry deviations, specifically overweighting information technology at 19%, industrials at 19%, and materials at 12%. Most constituent stocks carry an Overweight rating from Morgan Stanley analysts, creating a concentrated, high-quality portfolio built for sustained excess returns.