Morgan Stanley Upgrades China Property on Likely Policy Easing

(Bloomberg) -- Morgan Stanley has upgraded its view on China’s property sector to “attractive” from “in-line” as it sees growing likelihood of easing measures, with default risks and housing market weakness largely priced in.

“We believe an inflection point for China’s property policy is approaching,” analysts led by Elly Chen wrote in a note dated Sunday. “Property stocks will react on policy easing, which looks more likely now.”

China’s tightening policies on the property market to curb excess debt buildup and speculation have caused home purchases to drop sharply in the past few months. The situation has squeezed heavily indebted developers like China Evergrande Group and led smaller firms such as Fantasia Holdings to default, roiling the financial markets amid fears of risk contagion.

Expectations on policy easing are growing after China’s central bank last month urged financial institutions to help local governments stabilize the rapidly cooling market and ease mortgages for some homebuyers.

The northeastern city of Harbin is already taking steps to support its property market, offering home-purchase subsidies to those that meet certain requirements and making more homes eligible for lower-cost mortgages.

A Bloomberg Intelligence gauge for mainland developers has plunged 22% this year. Poly Developments and Holdings Group Co., China Resources Land Ltd. and Longfor Group Holdings remain the brokerage’s top picks and Sunac China Holdings is also preferred now on its “improving balance sheet, strong asset liquidity in high-tier cities, and attractive valuation.” 

Morgan Stanley also upgraded China’s property management industry to “attractive” from “in-line”, after a 30% pullback from July’s peak. It likes Sunac Services Holdings and CIFI Ever Sunshine Services Group.

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