(Bloomberg) -- One of China’s main stock gauges will test its highest level of the past decade over the next year as a recent rally extends, according to Morgan Stanley.

  • “A Chinese equity bull market is building with rising volumes amid improved earnings visibility and liquidity, plus regulatory/policy support,” strategists including Laura Wang and Jonathan Garner wrote in a note dated Tuesday
  • The bank set its 12-month target for the CSI 300 Index at 5,360, implying an upside of more than 13% from its 4,726.09 level at 11:30 a.m. Hong Kong time on Wednesday
    • NOTE: The gauge peaked at 5,380.43 intraday on June 9, 2015, before tumbling more than 30% by the end of the year
  • “A-shares are benefiting from strong new fund launches and rising retail investor account openings in the context of regulatory support and an ongoing market reform push,” the strategists wrote
    • READ: China Stock Technicals Are Long Way From Bubble Territory: Chart
  • Overheating may lead to regulatory tightening, the note said, adding that the A-share sentiment is “still below levels associated with unsustainable investor euphoria in June 2015”
  • The bank’s other targets include:
    • MSCI China: 103, representing a 7.2% gain from 96.01 at 12 p.m. Hong Kong time
    • Hang Seng Index: 28,000, versus 26,063.51 at present
    • HSCEI: 11,510, up 7.3% from current level

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