Morgan Stanley: Don't invest in banks or property

Investors should avoid investing in Chinese banks and real estate companies, a strategist with Morgan Stanley said, because they are "sensitive" to government policy changes, Bloomberg reported. “When the government reduces policy efforts, we think these sectors, which were early policy beneficiaries, will slow at the margin,” said Jerry Lou. Banks have extended US$1.1 trillion in loans in the first half of 2009 as part of Beijing’s US$586 billion stimulus package to help the Chinese economy, but some investors now are convinced that the banks are going to restrict lending in the second half. The Shanghai Composite Index plunged 6.7% on Monday, the biggest drop since June 2008, on concerns that a slowdown in lending growth may derail a recovery. The gauge has slumped 23% from its 15-month high on August 4 through Monday and analysts said it may drop further. Lou is advocating investors put their money into China Unicom and China Telecom to take advantage of the companies’ growing mobile telecommunications businesses.