Chinese equities are in a precarious place. They're cheap but testing the lows of the pop that started in late-September. That could go either way as investors could bid up those companies in part due to the lack of alternatives.
I think the best way to look at China is through the investable universe:
- Equities are cheap, have done well this year but have struggled for many years and confidence is low
- Bonds have provided great total returns but at 1.73%, prospects for further capital appreciation are low
- Real estate -- the traditional mom & pop investment -- has fallen hard
- Gold is one of the few winners and it's underscored by fresh central bank buying
- Commodity futures -- local futures markets, which have been prone to bubbles and busts
- Foreign securities -- good luck getting through China's capital controls
There are some limited 'connect' programs available for outbound investment and you can always try for black market bitcoin but for institutional investors, you're basically picking your poison from this list.
There is certainly money stashed in bank accounts that's available but when will it be unleashed? The WSJ today writes about a 'depression' in China in light of falling yields. The government today pledged to spending 4% of GDP compared to 3% previously but that hasn't moved the needle today.
"In reality, businesses are struggling to keep their lights on, people are having severe difficulty in finding jobs, and municipalities are drowning in debt. Even government employees aren’t getting paid," the WSJ writes, noting skepticism about the official 5% growth rates.
There is a sense that the government is keeping its powder dry for a trade war but there is also a sense of impatience.
The WSJ also highlights who the buyers of Chinese bonds are:
State-owned banks, insurance firms and funds, the very institutions Beijing is counting on to support the economy, are the major purchasers of government bonds. These institutions would rather park their money in the safety of bonds than financing business projects or otherwise putting it to work.
“What’s good to invest in these days when demand is so low?” a Chinese banker told me, referring to weak business and consumer spending.
Yikes.
