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.
How the Top Cryptocurrencies Performed in 2021
Cryptocurrencies had a breakout year in 2021, providing plenty of volatility and strong returns across crypto’s various sectors.
The Returns of Top Cryptocurrencies in 2021
2021 saw the crypto markets boom and mature, with different sectors flourishing and largely outperforming the market leader, bitcoin.
While bitcoin only managed to return 59.8% last year, the crypto sector’s total market cap grew by 187.5%, with many of the top coins offering four and even five-digit percentage returns.
2021 Crypto Market Roundup
Last year wasn’t just a breakout year for crypto in terms of returns, but also the growing infrastructure’s maturity and resulting decorrelation of individual crypto industries and coins.
Crypto’s infrastructure has developed significantly, and there are now many more onramps for people to buy altcoins that don’t require purchasing and using bitcoin in the process. As a result, many cryptocurrency prices were more dictated by the value and functionality of their protocol and applications rather than their correlation to bitcoin.
|Ethereum||Smart Contract Platform||399.2%|
|Binance Coin||Exchange Token||1,268.9%|
|Solana||Smart Contract Platform||11,177.8%|
|Cardano||Smart Contract Platform||621.3%|
|Terra||Smart Contract Platform||12,967.3%|
|Avalanche||Smart Contract Platform||3,334.8%|
|Polkadot||Smart Contract Platform||187.9%|
Sources: TradingView, Binance, Uniswap, FTX, Bittrex
Bitcoin wasn’t the only cryptocurrency that didn’t manage to reach triple-digit returns in 2021. Litecoin and Bitcoin Cash also provided meagre double-digit percentage returns, as payment-focused cryptocurrencies were largely ignored for projects with smart contract capabilities.
Other older projects like Stellar Lumens (109%) and XRP (278%) provided triple-digit returns, with Cardano (621%) being the best performer of the old guard despite not managing to ship its smart contract functionality last year.
The Rise of the Ethereum Competitors
Ethereum greatly outpaced bitcoin in 2021, returning 399.2% as the popularity boom of NFTs and creation of DeFi 2.0 protocols like Olympus (OHM) expanded possible use-cases.
But with the rise of network activity, a 50% increase in transfers in 2021, Ethereum gas fees surged. From minimums of $20 for a single transaction, to NFT mint prices starting around $40 and going into the hundreds on congested network days, crypto’s retail crowd migrated to other smart contract platforms with lower fees.
Alternative budding smart contract platforms like Solana (11,178%), Avalanche (3,335%), and Fantom (13,207%) all had 4-5 digit percentage returns, as these protocols built out their own decentralized finance ecosystems and NFT markets.
With Ethereum set to merge onto the beacon chain this year, which uses proof of stake instead of proof of work, we’ll see if 2022 brings lower gas fees and retail’s return to Ethereum if the merge is successful.
Dog Coins Meme their Way to the Top
While many new cryptocurrencies with strong functionality and unique use-cases were rewarded with strong returns, it was memes that powered the greatest returns in cryptocurrencies this past year.
Dogecoin’s surge after Elon Musk’s “adoption” saw many other dog coins follow, with SHIB benefitting the most and returning an astounding 19.85 million percent.
But ever since Dogecoin’s run from $0.07 to a high of $0.74 in Q2 of last year, the original meme coin’s price has slowly bled -77% down to $0.17 at the time of writing. After the roller coaster ride of last year, 2022 started with a positive catalyst for Dogecoin holders as Elon Musk announced DOGE can be used to purchase Tesla merchandise.
Gamifying the Crypto Industry
The intersection between crypto, games, and the metaverse became more than just a pipe dream in 2021. Axie Infinity was the first crypto native game to successfully establish a play to earn structure that combines its native token (AXS) and in-game NFTs, becoming a sensation and source of income for many in the Philippines.
Other crypto gaming projects like Defi Kingdoms are putting recognizable game interfaces on decentralized finance applications, with the decentralized exchange becoming the town’s “marketplace” and yield farms being the “gardens” where yield is harvested. This fantasy aesthetic is more than just a new coat of paint, as the project with $1.04B of total value locked is developing an underlying play-to-earn game.
Along with gamification, 2021 saw crypto native and non-crypto developers put a big emphasis on the digital worlds or metaverses users will inhabit. Facebook’s name change to Meta resulted in the two prominent metaverse projects The Sandbox (SAND) and Decentraland (MANA) surge another few hundred percent to finish off the year at 16,261% and 4,104% returns respectively.
With so many eyes on the crypto sector after the 2021’s breakout year, we’ll see how developing U.S. regulation and changing macro conditions affect cryptocurrencies in 2022.
The Periodic Table of Commodity Returns (2012-2021)
Energy fuels led the way as commodity prices surged in 2021, with only precious metals providing negative returns.
The Periodic Table of Commodity Returns (2022 Edition)
For investors, 2021 was a year in which nearly every asset class finished in the green, with commodities providing some of the best returns.
The S&P Goldman Sachs Commodity Index (GSCI) was the third best-performing asset class in 2021, returning 37.1% and beating out real estate and all major equity indices.
This graphic from U.S. Global Investors tracks individual commodity returns over the past decade, ranking them based on their individual performance each year.
Commodity Prices Surge in 2021
After a strong performance from commodities (metals especially) in the year prior, 2021 was all about energy commodities.
The top three performers for 2021 were energy fuels, with coal providing the single best annual return of any commodity over the past 10 years at 160.6%. According to U.S. Global Investors, coal was also the least volatile commodity of 2021, meaning investors had a smooth ride as the fossil fuel surged in price.
Source: U.S. Global Investors
The only commodities in the red this year were precious metals, which failed to stay positive despite rising inflation across goods and asset prices. Gold and silver had returns of -3.6% and -11.7% respectively, with platinum returning -9.6% and palladium, the worst performing commodity of 2021, at -22.2%.
Aside from the precious metals, every other commodity managed double-digit positive returns, with four commodities (crude oil, coal, aluminum, and wheat) having their best single-year performances of the past decade.
Energy Commodities Outperform as the World Reopens
The partial resumption of travel and the reopening of businesses in 2021 were both powerful catalysts that fueled the price rise of energy commodities.
After crude oil’s dip into negative prices in April 2020, black gold had a strong comeback in 2021 as it returned 55.01% while being the most volatile commodity of the year.
Natural gas prices also rose significantly (46.91%), with the UK and Europe’s natural gas prices rising even more as supply constraints came up against the winter demand surge.
Despite being the second worst performer of 2020 with the clean energy transition on the horizon, coal was 2021’s best commodity.
High electricity demand saw coal return in style, especially in China which accounts for one-third of global coal consumption.
Base Metals Beat out Precious Metals
2021 was a tale of two metals, as precious metals and base metals had opposing returns.
Copper, nickel, zinc, aluminum, and lead, all essential for the clean energy transition, kept up last year’s positive returns as the EV batteries and renewable energy technologies caught investors’ attention.
Demand for these energy metals looks set to continue in 2022, with Tesla having already signed a $1.5 billion deal for 75,000 tonnes of nickel with Talon Metals.
On the other end of the spectrum, precious metals simply sunk like a rock last year.
Investors turned to equities, real estate, and even cryptocurrencies to preserve and grow their investments, rather than the traditionally favorable gold (-3.64%) and silver (-11.72%). Platinum and palladium also lagged behind other commodities, only returning -9.64% and -22.21% respectively.
Grains Bring Steady Gains
In a year of over and underperformers, grains kept up their steady track record and notched their fifth year in a row of positive returns.
Both corn and wheat provided double-digit returns, with corn reaching eight-year highs and wheat reaching prices not seen in over nine years. Overall, these two grains followed 2021’s trend of increasing food prices, as the UN Food and Agriculture Organization’s food price index reached a 10-year high, rising by 17.8% over the course of the year.
As inflation across commodities, assets, and consumer goods surged in 2021, investors will now be keeping a sharp eye for a pullback in 2022. We’ll have to wait and see whether or not the Fed’s plans to increase rates and taper asset purchases will manage to provide price stability in commodities.
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