Investing in China’s stock market is to become more lucrative than real estate
February 26, 2019 Category China News Round-up, Weekly
The Chinese stock market may outperform the housing market in the next decade, reversing the trend seen in the previous decade, economists said. Discussions on whether investors should “sell housing to buy stocks” have spread across domestic media recently. in the past decade this strategy was not successful. From 2008 to 2018, the benchmark Shanghai Composite Index halved to 2493.90 points. In sharp contrast, the price of second-hand properties increased 3.6 times on average in China’s first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen, according to real estate agency Centaline Property.
As of February 21, the Shanghai Composite Index was up 10% this year, with turnover doubling to more than CNY200 billion per trading day. Meanwhile, the total area of properties sold in 30 major cities declined 14% year-on-year in January, according to Shanghai-based housing market data provider CRIC. Dong Dengxin, Director of the Finance and Securities Institute at the Wuhan University of Science and Technology, said financing stock investments by selling properties is too radical for many investors. “Family wealth should not be allocated largely on one type of asset.” “But, over the next decade, the Chinese stock market will offer more investment opportunities than the housing market”, as excessive money supply – the major driver of property prices in the past decade – will not continue. “In the next decade, the housing market will remain stable and be effective in preserving wealth. Room for appreciation will fluctuate with the growth in broad money supply, or M2,” Dong said.
Jiang Chao, Chief Economist at Haitong Securities, said decelerated money supply growth will weaken inflation expectations and thereby the attractiveness of real estate, which outperforms financial assets during inflationary times. Moreover, properties now have the highest valuation among major asset categories in China, whereas stocks are the cheapest.
Yang Delong, Chief Economist at Shenzhen-based First Seafront Fund, added that as China’s economic upgrade deepens over the next decade, the competitive landscapes of various industries will become more dominated by top players, whose profits will continuously grow and buoy the stock market. In the mid term, the A-share market is likely to see an overall positive performance this year amid policies to bolster growth and the growing profits of listed companies, said Gao Ting, head of China Strategy at UBS Securities. But short-term stock market fluctuations are still inevitable, the China Daily reports.
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