Morgan Stanley(US:MS)2025-11-26 14:15Summary of Key Points from the Conference Call Industry Overview - The report focuses on the China economy, specifically analyzing the nominal Fixed Asset Investment (FAI) trends and their implications for deflation and economic growth [1][3][10]. Core Insights and Arguments 1. Declining Nominal FAI: China's nominal FAI is experiencing a broad-based contraction, with significant declines in real estate (14%), infrastructure (30%), and manufacturing (37%) sectors [4][10]. 2. Investment Scenarios: Three potential scenarios for the future of nominal FAI and economic growth are outlined: - Base Case: Policy measures boost infrastructure FAI and stabilize labor markets through non-tech exports, leading to a moderate easing of deflation [10][54]. - Weak FAI with Strong Exports: Nominal FAI remains weak, but a strong recovery in exports could sustain GDP growth and ease deflationary pressures [10][55]. - Weak FAI and Exports: Continued weakness in both nominal FAI and exports could exacerbate labor market issues and intensify deflation [10][56]. 3. Investment Momentum: The report highlights a significant deceleration in investment momentum across various sectors, raising concerns about the macroeconomic setup and the need for consumption-boosting measures [13][14]. 4. Infrastructure Investment: Infrastructure FAI growth has sharply declined to -12.1% year-on-year as of October 2025, with expectations for modest acceleration in 2026 due to additional local government bond issuance [20][22][23]. 5. Manufacturing Sector Challenges: The slowdown in manufacturing FAI is attributed to a decline in non-tech exports and anti-involution efforts, with expectations for a recovery in non-tech exports beginning in Q1 2026 [29][30]. 6. Real Estate Sector Contraction: Real estate FAI has seen a significant decline, with growth at -24.1% year-on-year in October 2025, and a continued contraction expected in 2026 [34][35][40]. Additional Important Insights - Fiscal Deficit: The augmented fiscal deficit has narrowed by 1.2 percentage points in the past three months, indicating a tightening fiscal environment [21][24]. - Policy Measures: Policymakers are considering a mortgage interest subsidy program to support the real estate market, but details on its implementation remain unclear [36][39]. - Sectoral Performance: The manufacturing sector is facing broad-based slowdowns, with specific sectors like energy storage expected to perform better due to government focus [30][32]. This summary encapsulates the critical insights from the conference call regarding the current state and future outlook of the Chinese economy, particularly focusing on investment trends and their implications for deflation and growth.