Property Woes in China Persist: Goldman Sachs, Morgan Stanley Weigh In
Date: 28th December 2023
Author: Emmanuel Baiden – Senior Research Analyst
China's housing construction downturn is set to persist through 2024, posing challenges to economic growth. Leading financial institutions, including Goldman Sachs Group Inc., Morgan Stanley, and UBS Group AG, share a consensus on the continued contraction, signalling concerns that government interventions have yet to reverse the trend.
Record Streak of Contraction
?If predictions hold, China could experience three consecutive years of property construction contractions, constituting a record streak. Real estate investment, a vital economic driver, has fallen 8% year-on-year in the first 11 months of 2023.
?
Government Measures Not Enough
?Despite governmental efforts aimed at boosting housing demand, the outlook remains grim. The property market's persistent downturn has reduced its role as a demand generator for goods and services, contributing to a decline in its GDP contribution from 24% in 2018 to 20% currently.
?
Goldman's Bearish Forecast
?Goldman Sachs economists, led by Hui Shan, present a particularly bearish outlook, anticipating a "double-digit" contraction in real estate fixed-asset investment in 2024. They estimate a one-percentage-point reduction in real GDP growth due to the ongoing property slump.
?
Differing Forecasts:
?While Morgan Stanley foresees a 7% decline in the real estate investment gauge, UBS expects a 5% drop. China Merchants Bank International is also pessimistic, predicting a 7% fall in real estate investment.
?Analysts cite a sharp decline in newly started real estate projects and decreasing sales as reasons for pessimism. Both Goldman and UBS project a 5% decline in real estate sales next year.
?The property downturn has broader implications, contributing significantly to weak domestic demand, a key factor in China's deflationary trends. Economists anticipate Beijing setting an ambitious 2024 GDP growth target of around 5%, requiring substantial fiscal stimulus to counter housing-related growth impediments.
领英推荐
?Logan Wright, Director of China Market Research at Rhodium Group, offers a contrasting view, foreseeing low single-digit growth in both real estate construction and sales in 2024. Wright points to improving government land sales and increased equipment usage as positive indicators.
?
Potential Stimulus
?Some economists speculate on additional government stimulus to stabilize the market, including central bank or fiscal funds to directly purchase excess housing.
Analyst Perspectives
Allan Von Mehren, Chief China Economist at Danske Bank A/S, notes, "My baseline scenario is that the housing crisis continues in the first half but gradually improves in the second."
As we monitor China's property market developments, stay tuned for our upcoming newsletters providing real-time insights into the dynamic world of real estate.
Stock News
Intel Corporation, one of our recommended buys, has exhibited a 5% notable increase on the Nasdaq as of December 27. This uptick is attributed to the recent announcement by the US chip maker Intel regarding a substantial $25 billion (€22.6 billion) investment in Israel. Notably, this marks the largest investment ever made by a company in the country.
As part of this significant investment, Intel secured a $3.2 billion (€2.9 billion) grant from the Israeli government for the establishment of a new chip-making plant. Although the investment plans were initially disclosed in June 2023 by the Ministry of Finance, Intel officially confirmed them on Tuesday.
The forthcoming plant, poised to generate thousands of new jobs, will function as an extension of the existing Kiryat Gat manufacturing facility, situated approximately 42 km from the conflict-affected Gaza region. In addition to this, Intel has committed to procuring goods and services totalling 60 billion shekels (€15 billion) from Israeli suppliers over the next decade.
?
Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $300 million AUM and over 1000 Clients.
[Disclaimer: This newsletter provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.]
Explore investment opportunities with our dedicated relationship managers. Schedule a face-to-face and/or video meeting to help you achieve your financial goals. Visit our team page here.