Morgan Stanley's report pointed out that the Mainland China's People's Bank at the end of September's meeting and the Political Bureau meeting both indicated a significant policy shift towards the weak economy. However, the meetings of the National Development and Reform Commission on October 8th and the Ministry of Finance on October 12th failed to meet market expectations, further strengthening the bank's view that Mainland China's debt, population, and deflation will still face challenges in the future, specifically the debt-deflation cycle situation, especially when consumer stimuli fail to meet targets.

The bank believes that the valuation of China's Internet is still reasonable. As supporting policies take time to translate into consumer and business confidence, it is believed that even for certain cyclical sectors, the potential upside in profit forecasts from the second half of this year to next year remains uncertain. Revenue growth predictions for China's Internet in 2025 remain unchanged. The bank expects Mainland China's e-commerce GMV to grow by 7%, advertising revenue to grow by 8%, local service GTV to rise by 19%, and online travel agency (OTA) revenue to increase by 12%.

By industry classification, the bank's preference ranking is social gaming (Tencent), local services, OTA, e-commerce, vertical industries, social media/entertainment (excluding Tencent), gaming (excluding Tencent), and live streaming. The bank believes that Tencent (00700.HK) benefits from structural positives in gaming/social (accounting for 50% of revenue), macro visibility in advertising/fintech and enterprise services (FBS) options (50% of revenue), market share growth in all areas, high profit visibility, and commitment to capital management. Maintaining Tencent as the top choice in the industry, rating it as 'shareholding'.

The bank is bullish on Meituan (03690.HK) and Trip.com (TCOM.US) next, believing that both companies have structural positives in consumer recovery, superior growth, and benign/improving competition, with both rated as 'shareholding'. However, the bank maintains a cautious view on Alibaba (BABA.US), Baidu (BIDU.US), Netease (NTES.US), and Tencent Music (TME.US), rating them all 'in line with the broader market'.