cChinese investors have always been big fans of real estate – both at home and abroad. As a result, their Western counterparts are not likely to embrace the stock.
As a result of Chinese investors’ affinity for real estate assets, the real estate market in the world’s second largest economy is heavily censored and often the subject of bubble talk. Beijing has not lost sight of these factors, and policymakers there are working to redirect citizens’ savings from real estate to bonds and stocks.
While the idea of the government telling its citizens how and where to invest is not understandable to Westerners, the shift in policy could bring with it repercussions for US exchange-traded funds, such as ETF Emerging Markets Online and E-Commerce (NYSEArca: EMQQ).
Currently, only about 10 percent of household savings are in stocks. Chinese savings are still mostly in the banks and money market, with the exception of real estate. And only 6 to 8 percent of China’s domestic stock market is owned by foreign investors, which is low by global standards and as a result of the country’s capital controls,” the South China Morning Post reported.
On the contrary, home ownership in some major Chinese cities is as high as 85% or higher, which prompted President Xi Jinping to remind citizens that homes are for living in, not for speculation.
According to the Morning Post: “For the Chinese public, real estate has been a huge distraction, and now the challenge is to refocus their attention on stocks and other capital market products.”
EMQQ is pertinent to this conversation not only because it devotes nearly 53% of its weight to Chinese stocks (as of March 31), but also because many of the fund’s Chinese holdings could benefit from more of the country’s citizens investing in stocks and fixed. Revenues.
EMQQ’s exposure to financial technology has increased recently, and holdings such as Tencent and Alibaba (NYSE: BABA) already have financial services footprints. For example, Tencent’s blockchain and wallets could be relevant as more Chinese investors move away from real estate. The internet giant acknowledges on its website the existence of stock trading and wealth management services. Tencent and Alibaba are the third and fourth largest holdings of EMQQ, respectively, and together account for 16% of the ETF’s listing.
Today, Chinese citizens involved in the country’s stock market do not have a good reputation for being buy-and-hold investors. Instead, they enjoy speculating, but as that changes, EMQQ holdings can benefit. In addition, high-ranking investors play important roles in enhancing liquidity and stability in Chinese stock markets.
Market health has also improved due to increased participation from institutional investors, including public pensions, sovereign wealth funds, asset management firms and foreign institutions. These participants generally take a long-term approach, based on basic research,” notes the Morning Post.
Bottom line: It will take time to wean Chinese investors off real estate, but with this shift taking place, EMQQ stands as one of the most viable avenues for US investors to participate in the action.
For more news, information and strategies, visit our website Emerging Markets Channel.
Read more at ETFtrends.com.
The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.