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.
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.
Trump’s Relationship with the Price of Oil
What goes through the head of a U.S. president? The tweets of U.S. President Donald Trump reveal a contentious relationship with the price of oil and OPEC.
Visualizing Trump’s Relationship with the Price of Oil
What goes through the head of a U.S. president?
That is a question that both voters and leaders alike would love to know the answer to. As it stands, scores of pundits and analysts already dissect everything from the choice of a tie, to whom a leader sits next to at a state dinner, to glean the potential direction of government policy.
Financial markets rely on the accurate interpretation of government policy to guide investment decisions. But what happens when you’re faced with a world leader who broadcasts his unfiltered thoughts instantaneously and globally? It’s sure to stir up international attention.
This week’s chart is inspired by work done by John Kemp, an energy reporter for Reuters. Kemp tracked all instances of U.S. President Donald Trump’s tweets mentioning oil and OPEC, against the shifting price of oil.
Where’s Your Head At?
U.S. President Donald Trump has actively worked to tie the success of his administration to the fortune of the economy and stock market.
If the economy does well, Trump hopes cheap gas at the pump will help translate into votes at the ballot box in 2020.
Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower!— Donald J. Trump (@realDonaldTrump) November 21, 2018
The key to keeping the economy growing is access to cheap energy, and oil is the critical commodity that’ll keep a fragile economy on the road. This is a line of thinking that can be seen throughout Trump’s tweets on the subject.
Tracking Trump’s Tweets
This week’s chart tracks President Donald Trump’s tweets from April 2018 to March 2019 that mention oil and OPEC.
The tweets start five months before the deadline of sanctions on Iran. During this timeframe, speculation that Trump would place sanctions on the oil-producing nation drove up the price with the prospect of a restricted supply of oil and increased tensions in the Middle East.
Despite the implications of U.S.-imposed sanctions, Trump squarely put the blame on OPEC for this period of rising oil prices. Tweets such as “OPEC is at it again. Not Good!” or “The OPEC monopoly must get price down now!” can be seen in this period.
Whether these tweets had any influence on oil producers is unclear, but they certainly outline a policy preference for cheap oil and a general animosity towards OPEC.
On Nov. 4, 2018, Trump did impose sanctions but excluded Iranian oil exports, deflating a speculative bubble around the price of oil, and the president’s ire towards the region.
In the aftermath of sanctions, repeated news of record oil production and growing energy independence in the U.S. helped drive the price of oil back down. Though the president’s mood lightened, he still persisted in his accusations of OPEC manipulating the price.
Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!— Donald J. Trump (@realDonaldTrump) December 5, 2018
Prices continued to fall, plummeting to nearly $50 per barrel by the end of 2018. Cheap oil is a direct threat to the profits of OPEC nations, but higher prices can create an array of challenges for the U.S. economy.
So despite a U.S. alliance with Saudi Arabia, this is a natural tension baked into the relationship.
We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!— Donald J. Trump (@realDonaldTrump) September 20, 2018
So, what would a U.S. foreign policy look like without dependence on the Middle East?
The Middle East has had a considerable influence on U.S. foreign policy since the harsh lessons of 1970s energy crisis. Multiple wars of intervention to protect Saudi oil interests—and in turn, ensuring continued American access to oil—have ravished the region and led to a state of dysfunction and constant tension.
However, with the recent declaration of American energy independence, this relationship may change with a renewed prospect for peace. Trump may work to further undermine the power of OPEC to control oil prices, as well as the Middle East’s influence on U.S. foreign policy.
American energy independence is already challenging established relationships around the world. For example, Ukraine just recently accepted its first shipment of American oil in a move to counter Russia’s influence in the region.
A New Era
Diplomacy by Twitter has yet to prove to be an effective bridge in sustaining good international relations. That said, charting the tweets of world leaders is a unique way to interpret government policy and energy economics in this new era of social media.
It seems that the next time you want to know what is going through a leader’s head, you can simply try checking their tweets.
Visualizing the Wealth of Nations
These 10 countries hold 74% of the world’s $204 trillion in private wealth. How will this wealth of nations change over the next decade?
Visualizing the Wealth of Nations
Just as there exists a longstanding inequality in the distribution of household wealth, so exists a considerable differential in the amount of wealth held by countries on the international stage.
Simply put, some nations are “haves”, while many others are “have-nots”.
“Wherever there is great property, there is great inequality.”
– Adam Smith, The Wealth of Nations
We previously showed you how the ranking of the richest countries in the world has changed over the course of the last 10 years (2008-2018).
Today’s chart keys on a slightly different question.
What are the wealthiest nations today, both in absolute and per capita terms, and how is this list projected to change over the next decade? Let’s see how the wealth of nations stack up.
Private Wealth: Now and in the Future
Using data from the Global Wealth Migration Review, here are the 10 wealthiest nations both now and as forecasted in 2028.
|Rank||Country||Wealth (2018)||Wealth (2028F)||Approx. Growth|
|#1||🇺🇸 United States||$60.7 trillion||$72.8 trillion||20%|
|#2||🇨🇳 China||$23.6 trillion||$51.8 trillion||120%|
|#3||🇯🇵 Japan||$19.1 trillion||$24.9 trillion||30%|
|#4||🇮🇳 India||$8.1 trillion||$22.8 trillion||180%|
|#5||🇦🇺 Australia||$6.0 trillion||$10.8 trillion||80%|
|#6||🇬🇧 United Kingdom||$9.1 trillion||$10.0 trillion||10%|
|#7||🇩🇪 Germany||$8.8 trillion||$9.7 trillion||10%|
|#8||🇨🇦 Canada||$6.0 trillion||$7.8 trillion||30%|
|#9||🇫🇷 France||$5.9 trillion||$6.4 trillion||10%|
|#10||🇮🇹 Italy||$3.8 trillion||$4.2 trillion||10%|
It’s worth noting that these figures are meant to represent wealth, which is defined as the total amount of private wealth held by individuals in each country. It includes assets like property, cash, equities, and business interests, minus any liabilities.
China has been the best performing wealth market in the last decade, and these projections show the country as continuing on that track. In fact, both China and India are expected to see triple-digit growth in private wealth between now and 2028.
As far as developed countries go, it’s not surprising that growth rates are much more modest. In Europe, countries like Great Britain, Germany, France, and Italy are only expected to add 10% to private wealth in 10 years, while Canada (30%) and the U.S. (20%) do marginally better.
One notable exception here is Australia, which is expected to add 80% to private wealth over the timeframe – and it will leapfrog both Germany and the U.K. in the rankings in the process.
Wealth per Capita
Here’s a look at the wealth of nations in a different way, this time with numbers adjusted on a per capita basis.
|Rank||Country||Est. Population||Wealth per capita (2018)|
|#7||🇺🇸 United States||327,200,000||$186,000|
|#9||🇭🇰 Hong Kong||7,392,000||$169,000|
When using per capita numbers, it’s absolutely no contest.
Monaco, the city-state on the French Riviera, is a money magnet with $2.1 million of private wealth per citizen. This means the average Monacan is at least 10 times richer than the average North American or European.
Liechtenstein, a microstate that sits in the Alps between Switzerland and Austria, also has a high average wealth of $786,000 per person. Like Monaco, its population is well under 50,000 people.
Finally, it’s worth mentioning that three countries on the per capita list also made the overall list. Put another way, the countries of Australia, Canada, and the United States can all claim to be among the wealthiest of nations in both absolute and per capita terms.
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