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NEW YORK ( ETF Expert) --Scores of personalities have gone on the record, insisting that China will be the epicenter for the next housing collapse. Most of those analysts have never lived in Hong Kong, Taiwan or China; I spent four years in the region.
Nevertheless, others have continued to highlight "ghost towns" and "unsustainable" property prices as a means to highlight irrational exuberance in the world's second-largest economy.
Perhaps billionaire hedge fund manager Jim Chanos has been the most vocal naysayer over the last three years. If one looks only at the buy-n-hold performance of a volatile fund of real estate investment trusts (REITs) like
Guggenheim China Real Estate(TAO), it would certainly seem that Chanos got it right. On the other hand, if one employed a simple mechanical trading approach of buying TAO when its 50-day moving average rises above its 200-day, and selling TAO when the opposite occurs, one pocketed remarkable profits.
In essence, success always comes down to
understanding when to sell.
Courtesy of StockCharts.com
For those like myself who believe that China is better positioned than most nations and regions to manage economic challenges in the years ahead, you may have been encouraged by President Xi's latest remarks. Xi said, "China must boost the housing supply at all costs..." Moreover, he did so without any mention of rising home prices.
Predictably, China financial stocks as well as ETF benchmarks with heavy financial weightings found themselves at the top of the leader-board lThursday. The apparent implication of Xi's commentary is that the government is willing to tolerate rising prices at the higher end of the real estate spectrum, as long as builders are supplying affordable homes as well.
De Facto Stimulus in China?
Approx 5 Day %
Global X China Financials (CHIX)
iShares FTSE China 25 Fund (FXI)
iShares MSCI China (MCHI)
SPDR S&P China (GXC)
Guggenheim China Real Estate (TAO)
S&P 500 SPDR Trust (SPY)
It is certainly true that China's government has imposed tight controls on the real estate sector for roughly three years. Learning from U.S. mistakes (e.g., no-money down, interest-only loans, no documentation of income, etc.), homebuyers in China have had to come up with higher down payments and, in many cases, have not been permitted to buy second properties. Lately, however, China's commitment to 7.5% GDP has meant recognizing the critical contribution of housing to the overall economy's growth.