Morgan Stanley said that with the wave of stimulus measures and signals announced last week, Chinese stocks could enjoy a more “sustained rise” in the next phase – beyond their recent gains. Morgan Stanley analysts wrote in a report on September 29: “Last week's policy shift…exceeded our expectations, with strong monetary easing and unprecedented measures aimed at stabilizing and supporting the stock market and stemming the housing market.” decline. They forecast at least a 10% rise in the short term and even further gains in the future, it added: “In the next phase, (we) see the potential for a more sustained rebound – with valuations reaching November 2022 to 2023. The last level during the economic reopening in March, “provided that earnings improvements in broader growth provide further clarity” on efforts to recover and eliminate deflation. Against this backdrop, the bank expressed a preference for certain stocks that will benefit from easing measures. These include A-share companies whose dividend yields and free cash flow are “too high” relative to the refinancing rate of 2.25%, as well as “discounted” stocks listed in Hong Kong and mainland China that can benefit from loosening policies. measures, it said. A-shares refer to stocks listed in mainland China. Stock Screens Morgan Stanley conducts a number of stock screens to identify those stocks that will benefit. Here are two of them. A first report showed gains on six Hong Kong-listed stocks, which trade at deep discounts to A-shares and should benefit from the central bank's announcement. The second screened out stocks with current dividend yields below 2.25% but free cash flow yields “significantly” above 4% – relative to borrowing costs of 2.25%. This means these companies may have more incentive to increase dividend payments, buy back shares, or increase their holdings. China's Stimulus Measures Chinese stocks rose last week and again on Monday after China's central bank announced a series of measures to support economic growth, including a 50 basis point cut in the reserve ratio (RRR) for cash held by banks. It also announced plans to cut interest rates. It also followed a high-level meeting in which top leaders called for curbing the decline in the housing market and strengthening fiscal and monetary policies. Morgan Stanley said it expects to announce a supplementary budget at the end of October to support consumption and local government financing. It also expects to cut interest rates again by 10 to 20 basis points before the end of the year and reduce the deposit reserve ratio by 25 to 50 basis points. —CNBC’s Evelyn Cheng contributed to this report.