Morgan Stanley sees 'boom and bust' for China stocks

SINGAPORE: China stocks are headed for a "boom and bust" in 2010 because a rally in the first half may stall as inflation accelerates and the government withdraws some stimulus, Morgan Stanley said.

"We see a temporary window of high growth and low inflation in the first half of 2010 followed by rising inflation worries in the second half," Morgan Stanley analysts led by Jerry Lou wrote in a report. "This means an equity market boom and bust in the same year."

The MSCI China index may rise to 81.7 next year, higher than an earlier forecast of 74.1, the analysts said. They cut their forecast for the Hang Seng China Enterprises Index by 5.3 percent to 15399 to reflect the valuation of bank shares and raised their estimate for Hang Seng Index by 11 percent to 25716.