A New Perspective: China Property Curbs May be Positive for Stocks

Much has been written and reported on China property curbs by the central government. Much has been its dampening of the property market and property developers. The stock market has been hit to some extent as upside on property developer stocks have been limited. Is the market really so bearish or are we missing a different picture?
 
Let us look some indicators:
1) China’s 7+% GDP Growth moving forward is still amazing. Yes, it is not as good as before. They are in a “slow down”. But how many other countries have such growth numbers?
2) Consolidation within industries. We have all noted such announcements of public-listed companies but these numbers do not truly reflected the unreported private deals going on. The fact that big fish are taking out their smaller competitors by acquiring them is a bullish sign.
 
Now, think about why the China property market has boomed. We have all read about the “new rich” in Asia. Many business men have made their fortunes in China’s boom days. Some of their money has gotten to acquire property. Simple trend.
 
Now, consider that China has capital controls on the movement of RMB. Much money that has been earned from China’s domestic boom and growth in consumption is in RMB this money stays within China, mostly. Therefore, if there are property curbs in China to ease investment in the property market, the hot money has to flow somewhere else. China does not have a vibrant fixed-income (debt market). RMB is not a reserve currency for trading commodities. The simplest solution is to park money in stocks.
 
Shanghai Composite, SSE is trading at 10.97x P/E currently and at 8.56x FY14. This is attractive considering other major markets are trading above 10x FY14 P/E. The fact that China companies have been missing profit expectations puts a low base their earnings benchmarks. Any improvement in earnings in 2014 will make the market appear even cheaper in terms of FY 14 P/E.
 
I suggest we consider looking at blue-chips listed in Hong Kong and Singapore. December may be an excellent opportunity to accumulate when activity in the market is seasonally lower. Chinese New Year comes at the end of January 2014 so it may not be wise to be too hesitant.