Morgan Stanley has turned bullish on China stocks for the first time in nearly two years as the country embarks on a “clear path set towards reopening.” The investment bank upgraded China to overweight versus emerging market stocks on Dec. 4. It had held its equal weight rating on Chinese stocks since Jan. 2021 and was last overweight on China in March 2020. Morgan Stanley also gave the major Chinese stock indexes large potential upsides. Its base case price target for the end of 2023 for Hong Kong’s benchmark Hang Seng index now stands at 21,200 – rep r esenting a 13% upside from the Dec. 1 close. It gave the MSCI China index a price target of 7,400, or 14% upside from its Dec.1 close . “Our base case is that we are at the beginning of a multi-quarter recovery in earnings revisions and valuations with decent ROE improvement,” the bank said, referring to return on equity, a metric for measuring profitability. “Multiple positive developments alongside a clear path set towards reopening warrant an upgrade and index target increases for China.” Morgan Stanley recommended investing in offshore Chinese stocks. Hong Kong’s benchmark index soared more than 25% in November, after being in bear market territory for much of this year. The index is still down around 17% for the year as of Monday’s close. Chinese stocks have been battered by China’s zero-Covid policy, but have risen recently as the country showed signs of shifting away from that strict position. “We see a steep climb from here following the extreme underperformance of the last two years,” the bank said, although it cautioned the path to recovery “will be bumpy.” Stocks set to benefit Morgan Stanley highlighted a list of stocks it said are set to benefit from the easing in China. The bank said it has increased exposure to consumer stocks as reopening beneficiaries in particular. Within this sector, the bank likes sports equipment label Anta , online travel firm Trip.com , casino operator Wynn Macau and beermaker Budweiser. It gave Anta 44% potential upside and Budweiser 24% potential upside to their Dec. 1 close. Elsewere, Morgan Stanley favors airlines including Cathay Pacific Airways , which it gave 35% upside from its Dec. 1 close. The bank was also particularly bullish on Chinese biotech stocks WuXi Biologics Cayman and WuXi AppTec, giving them around 130% potential upside each. — CNBC’s Michael Bloom contributed to this report.