Chinese Stocks Could Plunge by 20% If Real Estate Troubles Get Much Worse, Morgan Stanley Says

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China’s real estate problems could significantly drag down the economy and stocks if authorities don’t provide enough support, Morgan Stanley analysts said.

The Chinese government has yet to announce publicly any kind of large-scale fund to support real estate developers in completing apartments.emphasize support for ensuring delivery of homes

The Morgan Stanley analysts described policy easing to support housing demand as"the most aggressive since 2016" and pointed out local governments' efforts to address unfinished houses. Morgan Stanley's base-case forecast expects long-term demand for housing to decline by 30% between 2020 and 2030. Overall, a slowdown in the residential property market will drag down GDP growth by 0.1 percentage points a year, in contrast to adding 1 percentage point to growth annually over the last two decades, the analysts said.Previously, China's real estate market had boomed for two decades, resulting in speculative behavior and increased risks for long-term economic growth. Housing sales value grew by roughly 20% a year to 18 trillion yuan in 2021, or one-sixth of GDP, according to Morgan Stanley.

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