U.S. investment bank Morgan Stanley (MS) is warning that Chinese stocks could plunge 20% if
authorities in Beijing don’t provide enough support to the country’s struggling real estate sector.
The Shanghai composite index has declined 12% so far this year. Several economists have
lowered their forecasts for China’s economic growth this year to 3% or less as ongoing Covid-19
lockdowns and a drop in the property market weigh on output.
Morgan Stanley says it expects the Chinese government will rescue the property market,
providing a fund to help developers finish building apartment units. That would allow housing
sales and prices to stabilize in the second half of this year, the investment bank said.
But if such a fund is too small and other measures remain limited, Morgan Stanley foresees
trouble ahead for Chinese stocks.
In a research report, the bank said that Chinese stocks could fall another 20% from current
levels over the next six to 12 months and remain lower for an extended period.
Morgan Stanley also said that China’s gross domestic product (GDP) could slow to 2% growth
in 2023 should the country’s real estate market falter, and more than 11 million people could
lose their jobs, likely sending the urban unemployment rate higher than 7%.
The Chinese government has yet to announce publicly any kind of large-scale fund to support
real estate developers in the country.
And, even if the Chinese government can stabilize the housing market, an aging population is
expected to reduce demand for apartments, putting the real estate industry on a downward path
moving forward.
Morgan Stanley’s forecasts that long-term demand for housing in China will decline by 30%
between now and 2030.
China’s real estate market had boomed for more than 20 years, resulting in speculative
behavior and increased risks for the economy.
Housing sales values in China grew an average of 20% a year to a peak of 18 trillion yuan
($2.65 trillion U.S.) in 2021, or one-sixth of the nation’s GDP, according to Morgan Stanley.
Morgan Stanley’s stock is down 14% this year and trading at $86.17 U.S. per share.
