23 October 2016
Herd mentality keeps driving lots of Chinese to speculate in the housing market in the hope of making easy money. Photo: China News.
Herd mentality keeps driving lots of Chinese to speculate in the housing market in the hope of making easy money. Photo: China News.

Chinese investors dump stocks for properties

In 2015, China saw some frenzied buying of equities, helping the market stage a strong rally in the first half of the year. But this year, the favored choice of speculators has been properties.

Last week, average daily combined turnover of Shanghai and Shenzhen bourses plunged to around 300 billion yuan, less than 15 percent of the peak level last year.

While stock markets are lackluster, the property sector is red-hot, luring many to jump on the bandwagon.

Mainland investors are well known for a herd mentality. A wide discrepancy between China’s equity and housing market performance prompted a lot of people to switch gear by dumping stocks and buying properties.

Hearing tales of others making a quick buck from property, many just don’t want to be left behind. 

Popular stock forums like Xueqiu, as well as several investor groups on WeChat that I usually participate in, have switched to discussing the housing market rather than the stock market.

Recent data shows how unpopular equities have become now. During the second week of September, only 12.8 million stock accounts, out of a total of 110 million, saw transactions. During the boom last year, almost 70 million accounts were active.

Last year, we had a situation where people flocked to stocks and avoided properties. Had investors sold stocks and bought properties, they would have made lots of money.

Does that mean it’s the time to be the contrarian again, sell the red-hot properties and move funds into equities?

Sadly, there is no simple answer.

“The market can stay irrational longer than you can stay solvent,” as John Keynes put it.

Take Hong Kong for example. The city’s housing market has been constantly labeled as exorbitantly expensive since 2010, while the Hang Seng Index hovered around 24,000 points back then.

Some investors took a bold move by selling Hong Kong property and buying stocks, since they believed the local housing prices were unreasonably high.

However, this group of investors would have regretted their decision, as the property price gauge Centa-City Leading Index (CCL) has surged more than 70 percent since 2010 while the benchmark stock index is still lower than 24,000.

This article appeared in the Hong Kong Economic Journal on Sept. 28.

Translation by Julie Zhu

[Chinese version 中文版]

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