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China's Getting Ready For A Long Bull Market

Capital Catalyst profile picture
Capital Catalyst


  • Restrictions in real estate speculation will push more funds into the stock market.
  • Capital market reforms show improvements in oversight, which will likely attract more investors.
  • New innovations show promise in producing leading companies similar to “big tech” in the US.
  • China is still a global growth engine.

China’s Shift Away from Housing

As the government restricts real estate speculation and tries to curb ever-rising property prices, the massive amount of Chinese household savings need alternatives for returns. The next move will likely be to the stock market.

In 2016, the Chinese government made its first statement on the housing market, stating that “houses are for people to live, not for speculation”. Subsequently, this started the strictest control in China, an attempt to curb the ever-rising home prices.

China’s residential property prices have been on a historic run partly due to the commercialization of land and the introduction of specialized zoning rights. The situation was further stimulated by the “4-trillion” liquidity program during the 2008 financial crisis, where most of the funds ran into buying properties instead of small and medium businesses.

Source: Federal Reserve

The real estate industry turned out to be one of the most profitable businesses overnight. Companies in other industries tried to grab a housing project to develop residential property, sometimes at the expense of their main business. Many well-off citizens would rush to buy, while those who are average or below-average income earners would further curb consumption hoping to save enough to buy their first home. As a result, ghost towns were formed and the real economy wasn’t seeing an uptick of growth that the stimulus intended to generate. That triggered the Chinese government to step in and introduce policies to stop the buying frenzy.

At the current state, I believe the Chinese housing market has reached near-peak levels, except for a handful of China’s top-tier cities, such as Shenzhen, Shanghai, Beijing, etc. These top-tier cities have the best schools, infrastructure, and the best businesses in China, attracting talents to migrate in for better opportunities. In most of the other cities, their property prices are currently experiencing a correction as they were significantly overvalued during

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Capital Catalyst profile picture
We are a group of young professionals graduated from business schools with a passion for finance and stock investing. We write macro topics that we are interested in and look at stocks that we will personally invest in our portfolios.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (7)

RMB is not freely exchangeable, everything is in control of a non-transparent government which is the suppression of freedom of news and voice. How would you gain the trust of those companies which have muddy operations? Even people say capital is only pursuing money, but the money has to be backed up by a trustworthy body so you can get money back.
krempep profile picture
As of April 2020, China’s total deposits are at 28.6 trillion USD, almost the size of the US and the European Union combined. This is mostly supported by the $26 Trillion US Deficit https://usdebtclock.org. The US is getting owned.
krempep: needs to be some consideration for the fact that those deposits are in Chinese RMB. Non easily convertible to USD, Euro or any other currency. All citizens of china can only convert a max of $50,000 USD equivalent RMB each year and even that needs approval. The CCP can restrict that further in fact they considered lowering that to $10,000 in 2018. CCP also decides the conversion rate, and also restricts access to what the citizens can even buy with the ccp almost requiring that they buy domestically produced goods, or goods imported goods with a very large tariff. All of which distorts spending power. All that being said, comparing USD/Euro to RMB is a little like comparing currency to monopoly money. You can not just calculate the USD exchange of those currencies and ascribe them the same value.
Moats and Income profile picture
China stocks now have to comply with SEC audit guidelines...which will likely result in delisting of many from NYSE/NASDEQ over next 3 years...

China funds are being restricted as government reign in passive investing of pensions and endowments.

Sorry, BlackRock...
Pompano Frog profile picture
Dear Reader..

This is a well done article on an important topic. I certainly would not agree with the use of Shiller p/e to make the author's conclusion. The S&P is not trading at 30x p/e. What a joke. It is probably close to 17x or 18x 2022 earnings. That is why this market has been moving. Global institutional investors use simple techniques to value markets that have short term earnings suppression issues.

The author's conclusions still hold. The difference in p/e will eventually close. The Hong Kong market and the Hang Seng Enterprise Index is even a better example of p/e disparity. The Enterprise Index are 500 Chinese companies trading on the Hong Kong Exchange. They have annual reports in English and have higher degrees of disclosure than companies on the NYSE.

I would think everyone who works in the field of global financial markets would tell you that Chinese companies listed in New York already are being audited by subs of the U.S. accounting firms. It is a simple manner to create a second set of books to comply with these additional requirements. This is mostly political.

Global institutional investors are underweight the economy which will be the world's largest in 5 years. Seeking Alpha readers faced the same situation in March when they were told be bearish because of Covid. Covid was a health threat. The problem was that it actually was bullish for equities because of it's effects on global central banks.

China is a communist country with a strong capitalist economic system. If you are a value investor and funding financial needs 5 years or more in the future you need to look seriously at China and Hong Kong while they are out of favor.
anarchist profile picture
@jmerlo Are you talking about the Senate bill that is still sitting in the House?
Moats and Income profile picture
CCP China has isolated itself...limiting its potential.

The decline of Huawei is a center stage example...smartphone sales tanking w/o access to Google and network sales hitting wall of 5G bans
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