Analysis Report: Morgan Stanley predicts that the rebound of China's Rongchuang may not be sustainable and reiterates the suggestion to buy into state-owned enterprises' domestic real estate at a low point.

Morgan Stanley released an Analysis Report on the domestic real estate industry. Over the past week, domestic real estate stocks have continued to outperform state-owned enterprise indexes. The main reason is believed to be the strong performance of Sunac China (01918.HK), a company in distress. However, the bank believes that this trend is not sustainable, as the fundamental improvement of related companies is lacking. Sunac China is currently valued at a forecasted price-to-book ratio of 0.4 times, which is almost on par with the valuation level of state-owned enterprise real estate stocks. The bank considers this situation to be unreasonable. After a short-term rebound following loose policies, the bank expects the industry to fall back, as the sales data so far has not convinced investors of a significant recovery. However, the bank believes that in the next 1 to 2 months, with the improvement in sales volume and the expectation of further policy easing, there may be directional positive news in the short term for the industry. However, Morgan Stanley reiterated that if the sales data deteriorates after a partial recovery, the industry may weaken again. Morgan Stanley recommends buying state-owned enterprise real estate and property management stocks such as China Resources Land (01109.HK), China Overseas Land & Investment (00688.HK), China Resources Mixc Lifestyle Services (01209.HK), Poly Property Group (06049.HK), and China Overseas Property (02669.HK). (wl/a)