Morgan Stanley Lifts China 2026 GDP Outlook on Improving Sentiment

Morgan Stanley has upgraded its gross domestic product forecasts for China for 2026 and 2027, a move driven by a sharp improvement in market sentiment as investors reassess geopolitical risks and economic drivers. The revision follows a rally in Chinese equities and the yuan, as markets begin to price in stronger AI-driven demand and a potential easing of US-China trade tensions.

"Resilience is a long-term property: it does not turn on a dime. Risk, however, absolutely does. Markets are repricing it by the hour,” Dr. Parag Khanna, Founder and CEO at AlphaGeo, said in a recent report on global risk.

The improving sentiment is reflected in the latest Henley & Partners–AlphaGeo Global Investment Risk and Resilience Index, where China rose six places to #31, the most significant move among large economies. This confidence has pushed Chinese equities and the yuan higher, with investors looking past trade rhetoric to focus on the country's push for AI self-sufficiency ahead of a high-stakes summit in Beijing between U.S. President Donald Trump and Chinese President Xi Jinping.

The upgrade suggests a broader divergence in how investors view emerging markets, moving away from regional blocs to assess resilience on a country-by-country basis. This shift could lead to a significant capital reallocation, challenging the long-held "developed equals safe, emerging equals risky" narrative and placing a premium on policy credibility and insulation from volatility.

The revision from Morgan Stanley comes as global investors are actively reconfiguring their portfolios in response to a shifting risk landscape. While the bank did not disclose the specific new GDP figures, the qualitative upgrade is a notable vote of confidence.

"The traditional narrative of ‘developed equals safe and emerging equals risky’ is breaking down,” said Dr. Tim Klatte, a Partner at Grant Thornton China. “Investors are no longer thinking in regional blocs — they are assessing resilience country by country and adjusting both capital and personal positioning accordingly.”

This re-evaluation is not limited to China. Other emerging economies, including India (rising 40 places to #64) and Mexico (rising 30 places to #66), have also seen their risk profiles improve, according to the Henley & Partners–AlphaGeo index. The trend points to a growing investor focus on countries with strategic trade positioning and a greater capacity to absorb global shocks.

For China, the positive revision is supported by expectations that leaders in Beijing and Washington will seek to de-escalate trade tensions, allowing markets to focus on fundamental drivers like the country's burgeoning AI sector.

This article is for informational purposes only and does not constitute investment advice.