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Trading Places: Chinese Flee Stocks for Offshore Property [Chart]

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Trading Places: Chinese Flee Stocks for Offshore Property [Chart]

Trading Places: Chinese Flee Stocks for Offshore Property [Chart]

Canadian and Australian housing sales set new monthly records in June

The Chart of the Week is a weekly feature in Visual Capitalist on Fridays.

Every transitioning economy has its growing pains.

This turns out to be especially true when that economy is an unusual Jekyll-Hyde type of hybrid: it’s run by a communist government that favours control, but at the same time wants to harness the growth of free market dynamics.

Over the last two years, the Chinese government has worked to relax margin restrictions. By changing these rules, it would allow more regular folks to borrow on margin to buy into and fuel the stock market. The only problem was that most of the public had never invested before, and intense speculative buying replaced any disciplined search for value or growth.

The market soared to new heights. New investors saw the gains and just kept piling in. Between June 2014 and May 2015, more than 40 million new trading accounts were opened, and many of these new equity investors had less than a high school education.

The Shanghai Composite Index, which tracks shares traded on Shanghai’s stock exchange, climbed over 150% since late 2014.

Then, the party abruptly came to an end. Over the last month, the market crashed and lost about 30% of its value, worth about $3 trillion. The government had taken unprecedented steps to slow down the crash, including halting IPOs, cutting interest rates, and other “stability measures”. Top brokerages even pledged to collectively buy 120 billion yuan ($24 billion) of shares to steady the market. Finally, the China Securities Regulatory Commission banned sales of shares for major investors for six months, and suspended trading in over 1,000 stocks.

The once frothy market has had mixed reactions over the last few days, but remains near its three month low.

The Pacific Connection

While surely some people have lost faith in Chinese stocks as of late, that doesn’t mean money wasn’t made. The market is still up 80% from a year ago and many that were in early made a killing.

What are some of these people doing with their newfound capital? Many are buying real estate in China to store their wealth.

In a survey carried out by the Southwestern University of Finance and Economics in Chengdu, 28,140 respondents were polled between June 15 and July 2. They found that more people were taking money from the stock market and buying property. In Q2, 3.7% of stock investors bought housing compared to 2.3% in the first quarter. Of those that bought property, 70% of households have made money in the stock market.

People from China have also looked abroad to store their wealth in housing. It’s no secret that Canada, Australia, and the United States have all felt the effects of foreign buying in their property markets over the years.

Cities such as Vancouver and Toronto have had an influx of new buyers fueling the boom, and this is part of the reason why Canada is now considered to have the most overvalued housing market in the world.

Sydney and Melbourne have seen similar effects, and Australia was recently ranked by the Economist as the second most overvalued housing market relative to income.

In the United States, the Bay Area continues to also have a bull market in property. Technology plays a big role in this, but foreign buyers have also been helping drive prices there as well. California is a popular destination for Chinese buyers, as 30% of all Asian-Americans reside in the Golden State.

The Numbers

In the month of June, housing prices and the number of sales have reached record levels in some of these markets.

The two hottest Canadian markets remained on fire, despite the country edging into a technical recession. In Vancouver, housing sales were 29.1% higher than the 10-year average for the month of June. This brought the benchmark housing price to C$1.1 million for a detached home. June was the fourth straight month with over 4,000 sales, a new record for the city. Luxury sales rose 48% in the period between January and June compared to last year.

Toronto’s luxury market is even hotter, with sales increasing 56% over the first half of the year. The benchmark housing price in the city for a detached home is now C$1.05 million, a 14.2% increase over the last year.

Two of the more prominent markets in Australia also kept their momentum. In Sydney, prices have soared 22.0% over the last 12 months for homes, to a median price of A$900,000. Melbourne, which started to cool off in the beginning of 2015, found resurgence in June that brought it back to strong double-digit annual growth.

Melbourne, which typically has less expensive homes than Sydney, Vancouver, and Toronto, is starting to join the million dollar club as well. Recently, there are 17 new postal codes that now have homes with A$1 million median prices.

From the Front Lines

The million dollar question is: to what extent do exits from the Chinese stock market and capital flight influence the markets in the above cities. Everyone can agree there is some influence, but narrowing down the specifics is much more difficult.

This is because there are not many official records on the specifics of foreign ownership, and much of the time transactions are done indirectly through family and friends.

Aside from the correlation with the numbers above, there is mainly anecdotal evidence from people on the ground.

In Vancouver, for instance, a Reuters survey found that of 50 land titles for detached Vancouver Westside homes worth over C$2 million, that nearly half of purchasers had surnames typical of mainland China. Five real estate agents primarily focused on sales on Vancouver’s more luxurious west side estimated that between 50% and 80% of their clients had ties to mainland China.

Michael Pallier, the Principal at Sydney Sothebys International Realty, said recently that volatility in the Chinese market was prompting more interest in local properties in the luxury market.

“Last month in our office we sold 20 properties for $115 million turnover in June, of which 25 per cent were sold to Chinese buyers, so we do have a lot of experience dealing with Chinese markets,” said Mr. Pallier, “They’d rather put the money into a property than put it into cash or into shares.”

David Fung, the vice-chair of the Canada China Business council, said that the stock market crash and volatility drives more investments into Canada, including British Columbia’s hot property market.

“They’re not looking necessarily for a very high return because it is for their own insurance,” said Fung.

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Markets

Pandemic Recovery: Have BEACH Stocks Bounced Back?

BEACH stocks—bookings, entertainment, airlines, cruises, and hotels—were pulverized at the beginning of the pandemic. Here’s how they’ve bounced back.

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Pandemic Recovery: Have BEACH Stocks Bounced Back?

The travel and entertainment industries have had a volatile ride over the last year.

During the initial stages of the pandemic, when panic and uncertainty ran rife, BEACH stocks–booking, entertainment, airlines, cruises, and hotels—were left scrambling. Collectively, $332 billion in market cap washed away.

Now, it appears the tide might be turning for these companies, buoyed by vaccine breakthroughs and glimmers of hope for a return to normalcy.

This infographic looks at the growth in market cap value across BEACH stocks one year from when the WHO officially declared COVID-19 a pandemic.

Washing Back to Shore?

BEACH stocks have gained a collective $376 billion in market cap in the year since the pandemic was declared, with about half the companies trading at their respective all-time highs.

In fact, about 70% of BEACH stocks have actually outperformed the S&P 500, which returned 43.7% during the same period.

CompanyTickerCategoryMarket Cap: 03/11/20 ($B)Market Cap: 03/11/21 ($B)Change
American AirlinesAALAirlines7.214.296%
Southwest AirlinesLUVAirlines23.534.446%
Alaska Air GroupALKAirlines5.78.142%
United AirlinesUALAirlines13.017.233%
Air CanadaACAirlines5.97.933%
Delta Air LinesDALAirlines29.130.96%
Expedia GroupEXPEBooking12.024.6105%
Allegiant TravelALGTBooking2.04.198%
Booking HoldingsBKNGBooking64.096.051%
Caesars EntertainmentCZRCasino & Hotel2.220.8824%
Norwegian Cruise LinesNCLHCruise & Casino4.310.9151%
Royal Caribbean CruisesRCLCruise & Casino10.822.4108%
CarnivalCCLCruise & Casino16.431.893%
Penn National GamingPENNEntertainment & Live Events2.620.4661%
Six FlagsSIXEntertainment & Live Events1.74.1142%
Live NationLYVEntertainment & Live Events10.819.379%
The Walt Disney CoDISEntertainment & Live Events201.2357.177%
Cedar FairFUNEntertainment & Live Events1.82.857%
HiltonHLTHotels25.034.638%
Marriott InternationalMARHotels35.648.235%
Choice Hotels InternationalCHHHotels4.55.930%
Hyatt HotelsHHotels6.78.729%
Marriott Vacations WorldwideVACHotels & Resorts3.87.7103%
Vail ResortsMTNHotels & Resorts7.113.488%
Park Hotels & ResortsPKHotels & Resorts3.45.358%
Wyndham Hotels & ResortsWHHotels & Resorts4.26.451%
MGM Resorts InternationalMGMResorts & Casino10.219.389%
Wynn ResortsWYNNResorts & Casino9.715.964%
Las Vegas SandsLVSResorts & Casino40.748.218%

BEACH Stocks Leaders and Laggards

When dissecting this basket of stocks by industry, it’s clear that much of the recovery story is lopsided. One reason for this, despite the pandemic, is that there are more granular, idiosyncratic trends occurring within these sectors.

Let’s look at what’s propelling the leaders, and dragging down the laggards:

Leading: Online Betting

There’s reason to be bullish on gambling stocks. Since late 2018, some 20 states have legalized sports betting, with more expecting to follow. Relative to other areas, the pandemic has been kind to gambling stocks. Many of those with an online presence have witnessed a spike in traffic, as more people continue to flock towards online betting.

Within the BEACH stocks basket, Penn National Gaming and Caesars Entertainment are clear outliers, having grown an epic 661% and 823% respectively. In addition, the broader industry (measured by the BETZ ETF) has nearly doubled the performance of the S&P 500 since its inception.

Laggard: Airlines

The return to normalcy will be much more delayed for airlines. Global RPKs, an industry metric, are not expected to reach pre-pandemic levels until 2024.

Actions of insiders also seem to match this negative sentiment. Warren Buffett, once a staunch supporter of airlines, decided to call it quits during the pandemic—dumping his entire position.

Airline COVID RPKs

U.S. airline executives have collectively been selling their stakes much more aggressively than in the last few years. To add insult to injury, there’s significant shorting of airline stocks as well. At a short interest of 11.6%, American Airlines is most heavily shorted BEACH stock.

Laggard: Hotels

In a year where social interactions and gatherings have largely disappeared, so too has much of the business activity for hotels. For instance, Hilton sales suffered a 58% decline year-over-year.

But even without the pandemic, the hotel industry had their work cut out for them, through a growing and formidable competitor in Airbnb. Airbnb can scale its network beyond what any hotel can. This is evident in its room count, which is greater than the largest hotels combined.

Airbnb room count vs hotels

More Bumps On The Road Ahead?

The investing landscape today looks to be disconnected from reality, in part because of the forward-looking nature of markets. Even though things are dire today, there’s a belief that light exists at the end of the tunnel.

But the path to recovery isn’t quite so linear. When the dust settles, it’ll become more apparent which industries will “return to normal” and which have set out permanently on a new trajectory.

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Mapped: The Top 10 Billionaire Cities

Where do the most billionaires live? For years, NYC has topped the list of billionaire cities, but 2020 marked a monumental shift.

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top 10 cities for billionaires

Mapped: The Top 10 Billionaire Cities in 2020

In 2020, the world gained 493 new billionaires—that’s one every 17 hours.

For the last seven years, New York City has been home to more billionaires than any other city in the world. However, last year marked a monumental shift in the status quo.

Beijing has unseated the Big Apple, and is now home to 100 billionaires. That’s one more billionaire than the 99 living in New York City.

Today’s map uses data from Forbes to display the top 10 cities that house the most billionaires.

Where do the Most Billionaires Live?

The richest of the rich are quite concentrated in cities, but some cities seem to best suit the billionaire lifestyle. Here’s a breakdown of the top 10 billionaire capitals and the collective net worth of all the ultra wealthy that live there.

RankCityRegionNumber of BillionairesNet Worth of the City's Billionaires
#1Beijing🇨🇳 Asia100$484.3B
#2New York City 🇺🇸 North America99$560.5B
#3Hong Kong🇨🇳 Asia80$448.4B
#4Moscow🇷🇺 Europe79$420.6B
#5Shenzhen🇨🇳 Asia68$415.3B
#6Shanghai 🇨🇳 Asia64$259.6B
#7London 🇬🇧 Europe63$316.1B
#8Mumbai🇮🇳 Asia48$265.0B
#9San Fransisco🇺🇸 North America48$190.0B
#10Hangzhou🇨🇳 Asia47$269.2B

Some cities have some obvious billionaires that come to mind. New York’s richest person and former mayor, Michael Bloomberg, is worth $59 billion. Beijing’s richest billionaire is the founder of TikTok (among other things), Zhang Yiming with a net worth of $35.6 billion.

In terms of the locations themselves, London, New York, and San Francisco are the only Western cities to make the list. Though New York was ousted from the top position last year, altogether the city’s billionaires are still worth more than Beijing’s.

One new city to make the top 10 list of billionaire cities was Hangzhou, the home of Jack Ma. It booted out Singapore from the 10th spot.

East Meets West

More than half of the top 10 cities are located in Asia, providing evidence of the shift eastwards when it comes to seats of wealth. Five of the six Asian cities listed are all in China.

What’s helped lead to this?

The country has seen an e-commerce boom, not in the least thanks to the pandemic. Additionally, the efficient handling of COVID-19 has allowed the economy to get back on track much more quickly than other countries. According to the BBC, 50% of China’s new billionaires have made their wealth either through tech or manufacturing.

Four of the Chinese cities on the list also had the biggest billionaire growth in 2020. Each of them gained more than 10 net new billionaires:

  • 🇨🇳 Hangzhou: 21
  • 🇨🇳 Shanghai: 18
  • 🇨🇳 Shenzhen: 24
  • 🇨🇳 Beijing: 33

The only other city to gain more than 10 new billionaires in 2020 was San Francisco with 11.

Now sitting at 698 billionaires, China is coming up on the 724 held by the United States. Beijing overtaking NYC could be the beginning of a larger tipping point.

Shifting Tides

Asia-Pacific’s collective 1,149 billionaires are worth $4.7 trillion, while U.S. billionaires are worth $4.4 trillion in total wealth.

Overall, it looks like the wealth tides may be turning as China continues to progress economically and more billionaires become based in the East over the West.

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