The bank's moves included raising its Chinese economic growth forecast 0.3 percentage points to 5.7%, lifting its yuan target to 6.65 to the dollar and predicting another 16% jump in MSCI's fast-rebounding Chinese equity index. "We believe the market is under-appreciating the far-reaching ramifications of reopening, and the possibility that a robust cyclical recovery can occur despite lingering structural headwinds," Morgan Stanley's analysts wrote in a note published late on Monday.

For the stock market, which is already up 45% up since late October, they likened the current situation to that in late 2008 and early 2009 after the global financial crisis when many international investors had sold down their positions and were left underexposed to Chinese markets.

"Don't underestimate this rally," the note added, pointing out that China's growth rate this year is likely to be more than six times faster than that of the United States in real terms.

"Not only does that mean that MSCI China absolute earnings per share growth and return on equity is set to surge, but that an even more dramatic shift in relative terms is now in sight," the bank's analysts said.

On the expected rise in China's currency, the bulk of the strength could come in the first half of the year they predicted, before moderating when a more meaningful recovery in travel abroad takes hold.

Its target of 6.65 yuan to the dollar compares to Tuesday's rate of 6.78 per dollar and follows an 8.5% rise from just over 7.32 at the start of November.