Investment bank Morgan Stanley has raised its forecast for China's 2009 GDP growth to 9% from the previous 7% and its 2010 GDP growth forecast to 10% from the previous 8%, Chinaknowledge reported on Tuesday, citing a new report of the bank.

This automatically raises our implied earnings view and index multiples for the Hang Seng China Enterprises Index (HSCEI), Jerry Lou, China strategist of Morgan Stanley, said at a media briefing yesterday.

HSCEI, which tracks the H shares of mainland companies listed in Hong Kong, may rise by 40 percent by the end of the year, while the indices measuring the domestic A share market are likely to grow even faster, Lou said.

According to the report, individual consumption will increase in a stable manner in 2010 due to the improved employment rate and improved consumer confidence. Exports will expand next year after having fallen sharply this year. However, inflation is unlikely to show until the middle period of 2010.

China's economic growth is accelerating, and some industries driven by domestic demand will show excellent performance in the second half of this year, Lou said, adding that domestic enterprises will regain profit in the second half of this year.

Lou predicted that the Chinese government will probably not adopt a tight monetary policy until the second half of 2010 and said he assumes there will be two interest rate increases in the second half of 2010.

The World Bank raised its 2009 economic growth forecast for China from 6.5% to 7.2% on June 18, while Goldman Sachs Asia forecast on July 8 China's GDP to accelerate close to 7.8% in the second quarter of 2009. The number provided by Morgan Stanley is the highest of all.

China's GDP grew 7.1% from the same period a year ago in the first half of 2009, an analysts said it adds confidence that China will achieve the full-year growth target of 8%.

China Morgan Stanley