The Chinese are turning their backs on real estate and are increasingly focusing on stock trading as their preferred form of investment. Chinese investors are turning to mainland China stocks, called A Shares, as other investment options such as real estate come under tighter scrutiny by the government.
According to Wind Information, the trading volume of shares has exceeded 1 trillion yuan ($ 154.56 billion) in the past six weeks and Wednesday hit the high of the year.
Chinese real estate market in focus
Summer 2021 will be remembered for the intense regulation implemented by the Chinese government affecting the technology and education sectors. Ting Lu, Nomura’s Chinese chief economist, expects this new political push to reduce wealth inequality to be felt especially in the real estate sector. Rising house prices over the past few decades have attracted significant speculation and created financial burdens for families looking to purchase a home in an area with a good school or close to work. Chinese authorities have stressed in recent years that “homes are for living in, not speculating” and have limited the ability of real estate developers to build new homes with high levels of debt.
“Markets may have become so focused on the regulatory storm that they ignore the elephant in the room: Beijing’s restrictions on the real estate sector, which makes up a quarter of the Chinese economy and half of the global construction business “Lu said in a report on August 24. “Markets should be prepared for what could be a much worse-than-expected slowdown in growth, more loans and bond defaults, and potential stock market turmoil,” he said.
In 2018, about 65% of Chinese households’ private wealth was in real estate, compared with 49% in the United States, according to Noah Research. This means that a lot of Chinese capital could go into shares. “Speculating real estate is definitely out of the question,” said Schelling Xie, senior analyst at Stansberry China according to a CNBC translation. Since the Chinese authorities tightened their ban on cryptocurrency transactions this year, “where is this money going?”. More money is thus expected to enter the stock market, especially as uncertainty about economic growth drives investors who expect monetary policy to ease, allowing for more capital flow.