AIA Group Ltd (HKG: 1299) shares have rebounded by more than 3%. At the time of writing, the stock is up 3.49% to HK$72.7, with a turnover of HK$3.232 billion.

Morgan Stanley believes the market's recent concerns regarding the Hong Kong financial sector are significantly overblown. The recent approximately 13% decline in AIA's share price is attributed to excessive market worry over potential disruptions to its Mainland China Visitor (MCV) cross-border insurance business.

However, insurance regulators from both sides, such as the Hong Kong Insurance Authority, have recently reiterated that cross-border insurance business remains compliant and operational as long as the entire sales and contract signing process is completed in person by the client within Hong Kong.

Morgan Stanley estimates that even under an extreme and unexpected scenario where no new MCV business is written from the second half of 2026 onwards, the impact on AIA's embedded value (EV) or operating profit would be a manageable 2% to 6%. The firm views AIA's current valuation as highly attractive and maintains its "Overweight" rating.