Monday, October 18, 2021

China’s government is making moves on housing

BlackRock is one of China’s biggest money managers, and by the sounds of it, it was approached by Evergrande Property Group (EVRGY) earlier this year.

If you’re unfamiliar with China’s property market — go ahead and look it up. It’s a growth area that’s responsible for $3.7 trillion in total value, equal to about $2 trillion in the US, which is far above our total gross domestic product.

Indeed, the Chinese property market is a huge area that’s been brewing for a while, and folks have been thinking that the government was finally beginning to do something about it. On Tuesday, things started to seem more like a turnaround.

While people took the opportunity to pick at the market and speculate that China was about to end its Communist Party monopoly on power, eveyone is sure to also remember that last month, stock markets went into a tailspin.

So there’s a bit of caution in the air.

China’s State Council (or Cabinet) is going to decide as soon as this week on the country’s next step in reining in its property market, sources tell the Wall Street Journal. The government is said to want to see if tightening credit next year would have a more “grounded” effect on property prices. One lever could be a possible shake-up at Evergrande, one of China’s largest property developers.

The stock has been slammed, and Evergrande’s total indebtedness of $92 billion more than quadrupled in the last year. The Shanghai Securities News reported that in June it ordered Evergrande to “review its corporate governance,” and pay a fine on cash-flow issues.

Evergrande’s plight has been mirrored by CITIC, a state-owned enterprise (SOE) in the property business. This stock is trading near its lows from this year as it also looks more likely that the SOE will take a hit. Not to mention, the Yuan has weakened and the popular China stocks ETF has done even worse.

BlackRock’s stock is trading near an 11-month low, and the latest stats showed that $514 billion had left BlackRock, with money going into Bond ETFs.

Investors poured into bond ETFs, as many see the Fed continuing to raise interest rates (it does not, as we’ll explain in a bit) in a bullish interest rate market.

Other money managers, on the other hand, see the long-term secular move away from stocks away from U.S. stocks moving faster than one would like.

The next big shift from investing in U.S. stocks to savings and dividend-oriented index funds for savings and retirement will be a big shift. And those funds will probably be some of the fastest growing in the near future.

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