The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
ôWe are now ruling out a bubble scenario for Chinese equities, although we remain bullish on the Hong Kong listed offshore China equities in 2008,ö Morgan Stanley writes in a recent report. ôWe think corporate China can handle the three challenges including a US recession and export slowdown, domestic asset price deflation, and monetary tightening and austerity controls, well through 2008.ö
As ôdecoupling believersö, Morgan Stanley believes the MSCI Barra China will produce an earnings growth of 24% in the coming year, although market multiples might contract if the US recession materializes. Morgan Stanley uses the current year price/earnings as the multiple to estimate the index target, which would be used by the market for most of 2008.
In the next few months, Morgan Stanley expects the market to experience range-trading or even a correction. However, it believes that eventually, ôearnings growth will win outö and aggressive US Federal reserve cuts will translate into a re-rating once again. ôWe are likely to stay bullish for most of the time in 2008.ö
Morgan StanleyÆs base case scenario incorporates an imported soft-landing, whereby the world economy slows down while China decouples. It is underweighting domestic asset price and US demand sensitive sectors, such as banking, insurance, real estate, oil and materials because they are exposed to the most macro uncertainties.
ôWe believe the best way to continue enjoying China growth in 2008 is to overweight domestic consumer demand driven sectors, such as consumer products, retail and telecom, as their earnings are based on much safer and strong volume growth,ö Morgan Stanley says.
In its model portfolio, Morgan Stanley is cutting its allocation to Cnooc and PetroChina by 6% and 7%, respectively, and allocating 3% to Sinopec in downstream energy as well as 3% each to the footwear brands Anta and Belle plus 2% each to casual wear brands Lining and Bosideng.
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