Morgan Stanley has flagged that Li Ning shares took a hit on Wednesday due to negative sentiment tied to the major shareholder sell-down at Haidilao, but the brokerage argues the market may be misinterpreting the underlying dynamics.

According to analysts led by Dustin Wei, Viva, the entity linked to Li Ning's controlling shareholder, has actually been steadily increasing its stake in the sportswear firm since the introduction of new trust regulations, rather than trimming its position. This counters the assumption that the shareholder is looking to offload holdings.

As of 9:51 AM Beijing time, Li Ning shares on the Hong Kong exchange were down 2.2%, continuing the previous day's slide, which saw the stock close over 6% lower.

The analysts noted that China's updated offshore trust tax rules took effect as early as July 24. If liquidity concerns for the founder were the primary driver, it would seem counterintuitive for Viva to utilize group cash and borrowing capacity to purchase additional Li Ning shares.

While fundamental performance in July was hampered by volatile weather conditions, Morgan Stanley expects a month-on-month improvement in August. The firm also anticipates that Li Ning's profit margins for 2026 could outperform current market worries.