Wall Street brokerages have turned more cautious on Chinese stocks as persistent deflationary pressures and geopolitical tensions cloud the outlook for earnings in the world’s second-largest equity market.

Morgan Stanley strategists reduced Chinese equities to a slight underweight within the region, while Goldman Sachs Group Inc. trimmed its index target on the MSCI China Index to reflect a less favorable macro backdrop. 

The latest calls represent a rapid turnaround from their upbeat stance on the market following Beijing’s stimulus blitz in September. The MSCI China Index has fallen about 15% from a recent peak as excitement over the prospect of more government support fizzles and Donald Trump’s victory in the US election raises concerns over higher tariffs on China.

“We see a low limited chance that China’s government will front-load enough fiscal stimulus to target consumption and housing in 2025 due to concerns over moral hazard and a premature transition into a ‘welfare state,’” Morgan Stanley strategists including Laura Wang wrote in a note on Sunday. That presents “even stronger headwinds on corporate earnings and market valuation in the coming months.”

The brokerage’s end-2025 target for the MSCI China Index stands at 63, slightly lower than Friday’s close of 63.93. In October, Morgan Stanley had scaled back its underweight position on China, citing an improved policy outlook.

Meanwhile, Goldman reduced its target on the gauge to 75 from 84. While the firm remained overweight on Chinese equities, it noted that potential US tariffs on China could lead to lower earnings growth. It had upgraded the market in October.

Goldman also downgraded Hong Kong stocks to underweight given the weak property and retail sectors, as well as less policy flow-through from China’s domestic easing.