London Daily

Focus on the big picture.
Friday, Aug 22, 2025

0:00
0:00

Morgan Stanley upgrades China property to 'attractive' despite default fears

The U.S. investment bank said it believes that policy easing of the property sector looks likely to kick in, which will support Chinese real estate stocks.

Morgan Stanley has upgraded China’s property sector to “attractive,” even as worried investors are watching closely to see if debt-saddled Evergrande might default, and whether there will be contagion.

The U.S. investment bank said it believes that policy easing of the property sector looks likely to kick in, which will support Chinese real estate stocks.

“We believe the default risks and property market weakness have been largely priced into property stocks,” Elly Chen, equity analyst at the bank, said in a note dated Oct. 10. “Property stocks will react on policy easing, which looks more likely now.”

“There have been several defaults since 2020 and escalating risk for a major developer default in 2021,” Chen acknowledged. She wrote that this “adjustment process” of reducing debt and policies to “manage system excesses” will likely continue for the next six to 12 months.

“However, property stocks are pricing in part of these risks, and we think systemic risk is manageable,” Chen said.

China’s property developers have grown rapidly following years of excessive debt, prompting authorities to roll out the “three red lines” policy last year. That policy places a limit on debt in relation to a firm’s cash flows, assets and capital levels.

Things came to a head after the policy started to rein in developers.

The world’s most indebted developer, Evergrande, warned twice last month it could default. It has missed interest payments on five offshore bonds so far, that were due in September and October.

Ratings agencies have also downgraded other Chinese property developers on tight liquidity and default risks.

Policy ‘inflection point’ approaching


But Morgan Stanley said a “policy inflection point is approaching.”

The analysts said there may be “potential upcoming easing measures,” as policymakers are expected to further ease mortgage quotas, as they have been trying to boost bank loans.

Home purchases have slowed this year, as Chinese cities implemented curbs including home purchase restrictions.

“Policy is the most important leading indicator for property stocks,” Chen said.

Residential property investment accounts for 6.5% of China’s gross domestic product, while property-related services account for a further 7.3%, according to Morgan Stanley. A 10% slowdown in residential property activity could drag down GDP growth by around 1%, the bank said.

“Further spillover could take the form of a negative wealth effect, dampening private consumption,” Chen said, adding that as a result, policymakers will likely provide “meaningful” easing to stabilize the property sector and support the economy.

Furthermore, most developers are on track to meet the “three red lines” criterion by the end of 2022, according to Morgan Stanley. The three red lines place a limit on debt in relation to a firm’s cash flows, assets and capital levels.

In the first half of 2021, 16 of 26 developers that the bank covers met the full criteria of the three red lines policy, while nine met two of the three criteria. Only one failed to meet all three criteria of that policy, the bank said.

Morgan Stanley’s top picks


Morgan Stanley has upgraded the China property sector to “attractive” in view of attractive valuation and more potential supportive measures aimed at boosting the real estate sector.

It says it prefers companies with strong earnings visibility, strong execution track records, and “robust” balance sheets.

The bank’s top picks are China Poly Group, CR Land, Longfor and Sunac.

Comments

Oh ya 4 year ago
They must have a bunch of paper and want to unload it on their customers and need to BS them into thinking it is safe

Newsletter

Related Articles

0:00
0:00
Close
After 200,000 Orders in 2 Minutes: Xiaomi Accelerates Marketing in Europe
Ukraine Declares De Facto War on Hungary and Slovakia with Terror Drone Strikes on Their Gas Lifeline
Animated K-pop Musical ‘KPop Demon Hunters’ Becomes Netflix’s Most-Watched Original Animated Film
New York Appeals Court Voids Nearly $500 Million Civil Fraud Penalty Against Trump While Upholding Fraud Liability
Elon Musk tweeted, “Europe is dying”
Far-Right Activist Convicted of Incitement Changes Gender and Demands: "Send Me to a Women’s Prison" | The Storm in Germany
Hungary Criticizes Ukraine: "Violating Our Sovereignty"
Will this be the first country to return to negative interest rates?
Child-free hotels spark controversy
North Korea is where this 95-year-old wants to die. South Korea won’t let him go. Is this our ally or a human rights enemy?
Hong Kong Launches Regulatory Regime and Trials for HKD-Backed Stablecoins
China rehearses September 3 Victory Day parade as imagery points to ‘loyal wingman’ FH-97 family presence
Trump Called Viktor Orbán: "Why Are You Using the Veto"
Horror in the Skies: Plane Engine Exploded, Passengers Sent Farewell Messages
MSNBC Rebrands as MS NOW Amid Comcast’s Cable Spin-Off
AI in Policing: Draft One Helps Speed Up Reports but Raises Legal and Ethical Concerns
Shame in Norway: Crown Princess’s Son Accused of Four Rapes
Apple Begins Simultaneous iPhone 17 Production in India and China
A Robot to Give Birth: The Chinese Announcement That Shakes the World
Finnish MP Dies by Suicide in Parliament Building
Outrage in the Tennis World After Jannik Sinner’s Withdrawal Storm
William and Kate Are Moving House – and the New Neighbors Were Evicted
Class Action Lawsuit Against Volkswagen: Steering Wheel Switches Cause Accidents
Taylor Swift on the Way to the Super Bowl? All the Clues Stirring Up Fans
Dogfights in the Skies: Airbus on Track to Overtake Boeing and Claim Aviation Supremacy
Tim Cook Promises an AI Revolution at Apple: "One of the Most Significant Technologies of Our Generation"
Apple Expands Social Media Presence in China With RedNote Account Ahead of iPhone 17 Launch
Are AI Data Centres the Infrastructure of the Future or the Next Crisis?
Cambridge Dictionary Adds 'Skibidi,' 'Delulu,' and 'Tradwife' Amid Surge of Online Slang
Bill Barr Testifies No Evidence Implicated Trump in Epstein Case; DOJ Set to Release Records
Zelenskyy Returns to White House Flanked by European Allies as Trump Pressures Land-Swap Deal with Putin
The CEO Who Replaced 80% of Employees for the AI Revolution: "I Would Do It Again"
Emails Worth Billions: How Airlines Generate Huge Profits
Character.ai Bets on Future of AI Companionship
China Ramps Up Tax Crackdown on Overseas Investments
Japanese Office Furniture Maker Expands into Bomb Shelter Market
Intel Shares Surge on Possible U.S. Government Investment
Hurricane Erin Threatens U.S. East Coast with Dangerous Surf
EU Blocks Trade Statement Over Digital Rule Dispute
EU Sends Record Aid as Spain Battles Wildfires
JPMorgan Plans New Canary Wharf Tower
Zelenskyy and his allies say they will press Trump on security guarantees
Beijing is moving into gold and other assets, diversifying away from the dollar
Escalating Clashes in Serbia as Anti-Government Protests Spread Nationwide
The Drought in Britain and the Strange Request from the Government to Delete Old Emails
Category 5 Hurricane in the Caribbean: 'Catastrophic Storm' with Winds of 255 km/h
"No, Thanks": The Mathematical Genius Who Turned Down 1.5 Billion Dollars from Zuckerberg
The surprising hero, the ugly incident, and the criticism despite victory: "Liverpool’s defense exposed in full"
Digital Humans Move Beyond Sci-Fi: From Virtual DJs to AI Customer Agents
YouTube will start using AI to guess your age. If it’s wrong, you’ll have to prove it
×