Filed Under:  U.S. & World

Will the decline of the Chinese real estate market pave the way to new stock rallies?

Contributed by on January 26, 2015 at 4:34 am

Team of soldier walk by TiananmenLet’s not kid ourselves-the Shanghai Composite Index has been brutal lately. No one can say a 7.7% drop is a blip on the radar. Blame it on regulation or other factors, it is what it is. Global investors’ eyes are now turned toward China and many don’t like what they see. They see a market that’s under threat from the fallout that may possibly caused by the real estate industry. They see slowing growth. What is there to be excited about? Well, if you are local investor, there might be a potential upside.
Low capital flows favor the Shanghai Composite
Local investment money has previously been poured into real estate. Since the real estate industry in China is showing signs of a massive slow down, that investment avenue might finally be coming to a close. At least for the short-term, Chinese investors may realize that putting their money into the glutted local real estate market might be like throwing money down a pit. This is the good news. How? With few other alternative investment options. Local investors can pour their investments into the Shanghai stock market.
Keep in mind that investing is all about weighing alternatives. If one options yields a better return than another option, you pick the higher-yielding option. Considering the fact that investor funds in China have to go somewhere and the fact that the US market may have reached its peak, it is clear that Chinese investors might possibly scoop up local stock. This can be a short-term thing as investors wait for real estate to pick up again. Regardless, don’t underestimate the role limited investment options play in local Chinese investment flows.