Morgan Stanley has updated the composition of its China/Hong Kong Focus List, adding two companies and dropping two others as it recalibrates its coverage priorities across semiconductor and petrochemical sectors.
The investment bank placed GigaDevice and Sinopec onto the China/HK Focus List and removed Espressif Systems and Sunny Optical from that roster. Separately, GigaDevice was also included on Morgan Stanley's A-share Thematic List. Morgan Stanley's China/HK Focus List now comprises 15 stocks.
GigaDevice (603986.SS)
Morgan Stanley assigned an Overweight rating to the semiconductor company, pointing to multiple growth drivers that underpin the call. The firm projects an 8% undersupply for NOR flash memory in 2026 and expects GigaDevice's NOR quality to strengthen in the automotive segment. On the DRAM side, Morgan Stanley identified potential pricing upside for specialty DRAM products as major memory suppliers exit the DDR4 market, forecasting a 26% undersupply for DDR4 in 2026.
The bank noted that GigaDevice has kept pricing adjustments more disciplined during the current cycle, which could pave the way for pricing expansion starting in the first half of 2026. Morgan Stanley also expects GigaDevice to continue expanding its share in China's microcontroller unit (MCU) market, with automotive MCUs highlighted as a larger opportunity because of relatively low local self-sufficiency in that area.
Sinopec (0386.HK)
Morgan Stanley rated Sinopec Overweight, characterizing the company as a central player in efforts to address overcapacity and competition in China's petrochemical industry. The firm emphasized Sinopec's combination of scalable existing capacity and a substantial pipeline of new capacity, and said capacity decisions made during the 15th Five-Year Plan period are important for the structural recovery of the petrochemicals sector.
On the earnings front, Morgan Stanley expects that losses in Sinopec's chemicals business will narrow in 2026 as certain chemical margins gradually recover and as prior impairment charges are absorbed. The refining segment is expected to gain from recent increases in crude oil prices and from robust regional cracker margins. Based on Morgan Stanley's 2026 earnings forecast, the company’s dividend yield is around 6 percent.
These changes reflect Morgan Stanley's current assessments of supply and demand dynamics in memory and DRAM markets, alongside capacity and margin developments in petrochemicals. The bank's portfolio adjustments replace two names with two others it views as better positioned under its present outlook.