Goldman Sachs cuts earnings outlook for MSCI China to zero growth

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.

Goldman has lowered its forecast for the China index due to the slump in the country's property market.

According to a report published late Thursday, the investment bank slashed its earnings outlook to zero growth for the year.

The analysts have lowered their price target for the next year. More than 700 China stocks are tracked by MSCI China.

Concerns about China's property market have caused the index to tumble more than 6% in July.

The new target means the index is expected to decline by 3% this year versus posting a mild gain, but it also means there is another 18% upside from the index.

Henry Chin, head of research for Asia-Pacific at CB Richard Ellis, said on CNBC that residential-led growth is coming to an end.

There is oversupply in smaller cities that could take up to five years for the market to absorb.

Moody's says that real estate and related industries make up 25% of China's GDP.

Goldman has lowered its expectations for new housing starts in the second half of the year compared to a previous forecast.

State-owned property developers are expected to perform better than those that aren't owned by the state. Goldman prefers sectors such as autos, internet retailing, and Semiconductor, but is cautious on bank stocks due to their exposure to housing related loans.

Goldman economists have reduced their China GDP forecast. All of the unresolved problems in Covid and housing were cited by the economists.

China's GDP grew by 0.4% in the second quarter from a year ago, well below the official full-year target of 5.5%.

The decline in real estate investment in the first half of the year was worse than the decline in the first five months.

Bernstein thinks that shares can rally more than 20% from here.

The property sector deteriorated beyond even our bearish expectations and the economy may be even worse than we think.

Lu said that the outbreak of Omicron and lockdowns from March to May have made the situation worse.

Most of the new Covid infections in China have been in the central part of the country, rather than the cities of Beijing andShanghai.

The risk of disease transmission has come under control in one of the hardest hit areas.