China’s Stock Market and Real-Estate Industry

As China becomes the world’s second-largest economy behind the United States, more investors are becoming interested in its stock market to seek profits. However, things are not that easy in the stock market, China’s stock market has just experienced a deep dive recently due to government intervention in the property market.

Since the restriction of property resale was implemented, property developers have been especially hard hit in the stock market, with Shenzhen-listed China Vanke falling 10% on March 4th. Poly Real Estate, a large developer listed in Shanghai, also fell 10%. Hong Kong's China Overseas Land and Investment declined 7%. In response to people’s resentment of the high real-estate prices and the fear of a property bubble, the government has tightened the rules on mortgages and has enforced a profit tax on sales of secondhand apartments. This leads to the downturn of the property index in the stock market as most of people who hold multiples housings were afraid of gaining profits from reselling their houses. Does it say something about China’s stock market and real-estate market?

The first thing to note is that 80% of the property market in China is driven by individual retail investors. Government policy has major impact on their estimations of the market trend and therefore effect decisions on whether to hold the properties or not. As the Chinese media announced that the government was considering measures to maintain low housing prices, a rush among those eager to buy and sell properties before the policy took effect took place over the weekend. Institutional investors dominate the stock market in most of the developed countries such as the United States. However, China has a larger weight of retail investors who do not understand the fundamentals of making decisions. Therefore, China’s stork market is relies on comments and is essentially a rumor-driven financial market.

Although there is a recession in the stock market, economists are optimistic about its future development since China real-estate industry will definitely benefit from the ongoing urbanization and the increasing wages of the middle class. More people will demand housing and their rising buying capacity will allow them to buy more real-estate. What do you think of the real-estate market’s impact on the stock market? Do you think the outlook for China’s stock market looks bright?