Beautiful Virgin Islands

Wednesday, Aug 27, 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.

Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
Manhunt in Australia: Armed Anti-Government Suspect Kills Police Officers Sent to Arrest Him
China Launches World’s Most Powerful Neutrino Detector
How Beijing-Linked Networks Shape Elections in New York City
Ukrainian Refugee Iryna Zarutska Fled War To US, Stabbed To Death
Elon Musk Sues Apple and OpenAI Over Alleged App Store Monopoly
2 Australian Police Shot Dead In Encounter In Rural Victoria State
Vietnam Evacuates Hundreds of Thousands as Typhoon Kajiki Strikes; China’s Sanya Shuts Down
UK Government Delays Decision on China’s Proposed London Embassy Amid Concerns Over Redacted Plans
A 150-Year Tradition to Be Abolished? Uproar Over the Popular Central Park Attraction
A new faith called Robotheism claims artificial intelligence isn’t just smart but actually God itself
Deputy Prime Minister Angela Rayner Purchases Third Property Amid Housing Tax Reforms Debate
HSBC Switzerland Ends Relationships with Over 1,000 Clients from Saudi Arabia, Lebanon, Qatar, and Egypt
Sharia Law Made Legally Binding in Austria Despite Warnings Over 'Incompatible' Values
Italian Facebook Group Sharing Intimate Images Without Consent Shut Down Amid Police Investigation
Dutch Foreign Minister Resigns Amid Deadlock Over Israel Sanctions
Trump and Allies Send Messages of Support to Ukraine on Independence Day Amid Ongoing Conflict
China Reels as Telegram Chat Group Shares Hidden-Camera Footage of Women and Children
Sam Nicoresti becomes first transgender comedian to win Edinburgh Comedy Award
Builders uncover historic human remains in Lancashire house renovation
Australia Wants to Tax Your Empty Bedrooms
MotoGP Cameraman Narrowly Avoids Pedro Acosta Crash at Hungarian Grand Prix
FBI Investigates John Bolton Over Classified Documents in High-Profile Raids
Report reveals OpenAI pitched national ChatGPT Plus subscription to UK ministers
Labour set to freeze income tax thresholds in long-term 'stealth' tax raid
Coca‑Cola explores sale of Costa coffee chain
Trial hears dog walker was chased and fatally stabbed by trio
Restaurateur resigns from government hospitality council over tax criticism
Spanish City funfair shut after serious ride injury
Suspected arson at Ilford restaurant leaves three in critical condition
Tottenham beat Manchester City to go top of Premier League
Bank holiday heatwave to hit 30°C before remnants of Hurricane Erin arrive
UK to deploy immigration advisers to West Africa to block fake visas
Nurse who raped woman continued working for a year despite police alert
Drought forces closures of England’s canal routes, canceling boat holidays
Sweet tooth scents: food-inspired perfumes surge as weight-loss drugs suppress appetites
Experts warn Britain dangerously reliant on imported food
Family of Notting Hill Carnival murder victim call event unmanageable
Bunkers, Billions and Apocalypse: The Secret Compounds of Zuckerberg and the Tech Giants
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"
×