A few weeks ago, here on
I wrote a
titled "Is Chinese real estate actually suggesting a melt
up...not down?" in which I made the argument that there was a
strong similarity in the way China's real estate stocks were
behaving relative to China to the way U.S. homebuilders in early
October. How are we doing?
Markets have a funny way of turning laggards into leaders.
While China ended 2011 as one of the worst countries to invest
in, the Hong Kong stock market in 2012 has now had its best start
to a year since 1991.
Lo and behold, its been the property sector which is now up
the most, advancing by roughly 25% in two short months.
What caused the massive move seems to be this general sense of
reflation which I keep stressing in my writings, with an
environment to me which seems similar to 2003 and 2009.
The general feeling of Europe not imploding, better economic
data in the United States and a global credit easing cycle has
caused money to rush back into emerging markets and specifically
This global theme is something I believe many are
underappreciating, as I noted in my recent appearance on
Is the move over? Let's reexamine the core reason for why I
believed China would have a massive move to begin with: the
relative performance of China's Real Estate to China's broader
Take a look below at the price ratio of the Guggenheim Real
Estate ETF (
) relative to the iShares FTSE China 25 Index Fund ETF (
). As a reminder, a rising price ratio means the numerator/TAO is
outperforming (up more/down less) the denominator/FXI.
I've drawn in a "resistance" line at which the ratio has
historically turned around. Strength on the far right has been
stunning as China real estate far outperformed and pulled the
country's equities higher, but we are nearing a relative
While the trend in further leadership of China real estate
could abate, the reality is that the general bullish move may not
be anywhere near over yet given good strength in China's
financials, more credit easing potential, and high risk-taking
The China Melt-Up hypothesis looks to still be early on in its
Michael A. Gayed CFA
for Emerging Money
Pension Partners, LLC
, and/or its clients may hold positions in securities mentioned
in this article at time of writing. The commentary does not
constitute individualized advice. The opinions herein are not
personalized recommendations to buy, sell or hold