Improved earnings, economic growth will drive share prices. Morgan Stanley is forecasting gains of about 26 per cent for Chinese stocks listed in Hong Kong amid low valuations and expectations for improving company earnings and economic growth this year. The brokerage expects the Hang Seng China Enterprises Index of so-called H shares to rise to 13,400 by the end of the year, analysts including Jonathan Garner wrote in a report yesterday, compared with the gauge\'s previous close of 10,640.16. Morgan Stanley predicts Hong Kong\'s benchmark Hang Seng Index to rise to 23,600, 15 per cent above its last closing level, while the MSCI China Index may rise 20 per cent to 70. The H-share index gained 7.1 per cent in the three months through last week for its second straight quarterly gain. The gauge sank 7.2 per cent since March 5 when China unveiled a lower annual target for the nation\'s gross domestic product. The measure trades for eight times estimated profit, a 22 per cent discount to the Hang Seng Index\'s 10.3 multiple, according to data compiled by Bloomberg. \"We are going to look at sequential acceleration from the second quarter onwards, probably accompanied by additional gradual policy easing,\" Garner said in a telephone interview from Hong Kong yesterday. \"That will lead to a better price-to- earnings re-rating of the H-shares because that\'s more influenced by China GDP growth.\" From: Gulfnews