Water cooler talk among several investment research firms in New York and New Jersey are looking closer at China’s capital controls and what it means for many markets. One of the favorites for short-sellers right now is the Toronto and Canadian real estate market.
Over the last three months, the iShares MSCI Canada (EWC 36,88 -0,27 -0,73%) is the worst performing market in North America. EWC is down by over 5%, while Mexico is up, the S&P 500 is up, and the MSCI World as measured by the corresponding iShares fund (Unfortunately, we could not get stock quote XWD this time.) is also up. Some top-down investment research firms are blaming the housing market, closely linked to Chinese demand.
For several markets, China is the elephant in the living room.
Many countries are banking on Chinese growth and investment. The Belt and Road Initiative meeting happens in Beijing this weekend. China’s Silk Road investment project was launched in September 2013 and has become a central plank of Chinese economic policy. The World Bank believes that the project can stimulate Asian economic growth through an increase in infrastructure spending, much of it expected to serve as a way for Chinese companies to sell more of its products and services into these markets.
According to HSBC, countries along the land and sea routes of the Silk Road account for 83% of the world’s population and 59% of global GDP. Trade between these countries and China reached $1 trillion in 2016, or 26% of China’s total trade. That’s more than Chinese investment in their BRIC counterparts, which fell 2% in 2016 and has dropped an additional 18% so far this year. China is clearly looking in its own backyard. This may be good for private companies like Huawei, the Chinese Cisco, and good for Chinese publicly traded construction equipment makers like Zoomlion that may benefit from further development of the Silk Road.
China watchers also see the Silk Road initiative as a way for the Chinese to diversify investment risk out of the country. For Beijing, this is a better way for China to take money out and put it to productive use, rather than into foreign real estate.
New taxes and policies that make it less attractive for Chinese wealthy to buy foreign real estate is likely to weigh on a few housing markets worldwide, namely London, New York, Los Angeles, San Francisco, Miami, Toronto and Vancouver.
Chinese authorities are trying to curb leverage at the state level by checking the surge in credit expansion. A lot of that credit is used by China’s well-heeled and well-connected to siphon money to North American housing.
Interest rates there are rising. Chinese 10-year bond yields are at a 2-year high. Next week, investors will have a look at the latest Chinese economic activity statistics. There might be signs of a slowdown, as indicated in the latest statistics on power consumption which dipped to 6% in April. Watch Out For China
Water cooler talk among several investment research firms in New York and New Jersey are looking closer at China’s capital controls and what it means for many markets. One of the favorites for short-sellers right now is the Toronto and Canadian real estate market.
Over the last three months, the iShares MSCI Canada (EWC 36,88 -0,27 -0,73%) is the worst performing market in North America. EWC is down by over 5%, while Mexico is up, the S&P 500 is up, and the MSCI World as measured by the corresponding iShares fund (Unfortunately, we could not get stock quote XWD this time.) is also up. Some top-down investment research firms are blaming the housing market, closely linked to Chinese demand.
For several markets, China is the elephant in the living room.
Many countries are banking on Chinese growth and investment. The Belt and Road Initiative meeting happens in Beijing this weekend. China’s Silk Road investment project was launched in September 2013 and has become a central plank of Chinese economic policy. The World Bank believes that the project can stimulate Asian economic growth through an increase in infrastructure spending, much of it expected to serve as a way for Chinese companies to sell more of its products and services into these markets.
According to HSBC, countries along the land and sea routes of the Silk Road account for 83% of the world’s population and 59% of global GDP. Trade between these countries and China reached $1 trillion in 2016, or 26% of China’s total trade. That’s more than Chinese investment in their BRIC counterparts, which fell 2% in 2016 and has dropped an additional 18% so far this year. China is clearly looking in its own backyard. This may be good for private companies like Huawei, the Chinese Cisco, and good for Chinese publicly traded construction equipment makers like Zoomlion that may benefit from further development of the Silk Road.
China watchers also see the Silk Road initiative as a way for the Chinese to diversify investment risk out of the country. For Beijing, this is a better way for China to take money out and put it to productive use, rather than into foreign real estate.
New taxes and policies that make it less attractive for Chinese wealthy to buy foreign real estate is likely to weigh on a few housing markets worldwide, namely London, New York, Los Angeles, San Francisco, Miami, Toronto and Vancouver.
Chinese authorities are trying to curb leverage at the state level by checking the surge in credit expansion. A lot of that credit is used by China’s well-heeled and well-connected to siphon money to North American housing.
Interest rates there are rising. Chinese 10-year bond yields are at a 2-year high. Next week, investors will have a look at the latest Chinese economic activity statistics. There might be signs of a slowdown, as indicated in the latest statistics on power consumption which dipped to 6% in April.