Leading Economist Says Chinese Investors Should Switch from Real Estate to Securities

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One of China’s most renowned economists has called for the country’s retail investors to switch from real estate to equities and other securities.

Speaking at a recent investment summit, Li Xunlei, chief economist for Zhongtai Securities, said that mainland Chinese retail investors have too much money tied up in real-estate and banks deposits, and should instead be placing more of their funds in shares or share funds, as well as fixed-income assets such as bonds and bond funds.

Li takes a dour view of the future prospects for Chinese housing prices, noting that while growth was led by demographic shifts last decade, since 2010 key drivers have been loose monetary policy as well as a scarcity of assets for domestic investment.

Li expects demographic shifts to now have a negative impact on housing prices.

“Our currently population movements are decreasing, and this will further reduce demand for housing, so from a long-term perspective I am not optimistic.”

He predicts that housing prices could fall significantly by the end of the decade, particularly given the government’s determination to curb housing bubbles and wild price fluctuations, and China’s central economic work committee firmly opining earlier this year that “houses are not for speculation, but for living in.”

Li is particularly critical of China’s monetary policy, noting that excess expansion has led to bubble in prices for domestic assets, making it difficult for investors to find long-term value growth opportunities.

With respect to asset allocation, Li advocates 1. allocation to financial assets; 2. allocation to financial assets with international pricing such as gold and Hong Kong equities; 3. allocation to undervalued assets with domestic pricing.

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