Growth investors, especially those interested in Chinese stocks, may have noted with interest a news story that appeared a day or so ago. China’s National Bureau of Statistics (NBC) just released its January numbers, and the news is good. New home prices rose just 0.2% in January, down from 0.3% in December and continuing the four-month deceleration in price inflation.
On the one hand, that news is about as useful for U.S. growth investors as a report that a new frog was discovered in the Amazon.
After all, there are no Chinese housing stocks that trade on U.S. exchanges. (The closest would be Leju Holdings (LEJU), which is like a Chinese combination of Zillow (ZG) and a multiple listing service.)
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On the other hand, China is an enormous, continuing experiment in how to bring a huge, agricultural country through industrialization and into a post-industrial, consumption and services-based world in a couple of decades. The Chinese economy is playing an increasing role in the health of the global economy, and understanding what’s happening there is useful for any growth investor.
The overheating of the Chinese housing market hasn’t been happening because so many Chinese families want new homes. Rather, housing inflation came about because there is so much capital in China sloshing around looking for higher returns. And housing is one of the main sectors in China that ordinary citizens can put their money to work in. (The Chinese stock market is another, but a bout of government-encouraged overinvestment and subsequent market crash soured many on that avenue.)
The Chinese government is worried that capital flight from China will take too much money out of the country, limiting the amount of money available for internal investment. Recent restrictions on overseas real-estate purchases have dialed back the overseas purchase strategy.
In the face of this push-pull of money looking for higher returns and the government trying to avoid unsustainable surges and busts in any one sector, the news about moderating growth in housing prices is a welcome sign. It shows that the overheated pursuit of housing is cooling off, which is good news all around.
The slow, steady rebound of the Shanghai Composite is another indicator that the Chinese stock market is recovering its appeal after the crash that pulled it from above 5,000 in June 2015 to around 2,600 in January 2016. The more Chinese capital that gets put to work in owning Chinese stocks, the better for the Chinese economy, which is also better for the global economy.
Growth stock investors, especially those who appreciate the potential strength of Chinese stocks that trade on U.S. exchanges, should be glad to see this news. And if you’d like a trustworthy, experienced guide to benefiting from that strength, Cabot Global Stocks Explorer will put you in the driver’s seat.
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