Goldman Sachs cuts earnings outlook for MSCI China to zero growth

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In China, people typically buy apartments before they are completed. Pictured here on June 28, 2022, are unfinished residences in Nanning, Guangxi Zhuang Autonomous Region.

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BEIJING — Goldman Sachs has cut its forecast for the MSCI China index due to a worsening slump in China’s property market.

The investment bank slashed its earnings outlook for the index to zero growth for the year, down from 4% previously, according to a report published late Thursday.

The analysts also cut their MSCI China price target over the next 12 months to 81, down from 84. MSCI China tracks more than 700 China stocks listed globally, including Tencent, BYD and Industrial and Commercial Bank of China.

The index has tumbled more than 6% in July alone as worries about China’s property market added to existing concerns about Covid, tech regulation and geopolitics.

The new, reduced target means there’s another 18% upside from the index’s close of 68.81 on Friday, but it also means the index is expected to decline by about 3% this year versus posting a mild gain.

Pressure on Chinese real estate

Covid overhang

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Nomura’s chief China Economist Ting Lu warned in a report Friday that “the slowdown may be even worse than data suggest” and noted the property sector “deteriorated beyond even our bearish expectations.”

“The outbreak of Omicron and lockdowns from March to May have materially worsened the situation, as lockdowns have limited Chinese households’ purchasing power and reduced their appetite and ability to purchase new homes,” Lu said.

While China’s new Covid cases have climbed into several hundred a day, most infections have been in the central part of the country rather than the metropolises of Beijing and Shanghai.

Over the weekend, one of the hardest-hit areas, Lanzhou city, said the risk of disease transmission has come under control.

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