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(XINHUA FINANCE)Standard & Poor’s has released its latest Global Financial Literacy Survey. Statistics show that only 45 percent Chinese would calculate compound interest from savings, and their knowledge about other wealth management basics is poor. To put their money in the bank for fixed term deposit is still the predominant way of wealth management for Chinese households.
Following the interest rate cut on Oct. 24 this year, the one year deposit benchmark interest rate has dropped to 1.5 percent, which means that China has entered the era of extremely low real interest rate. Bank deposit can no longer meet the market demand for higher investment return. Now people have to face up to the issues of risk exposure and asset allocation.
After RMB was added to SDR, the foreign exchange rate of RMB against U.S. dollar has dropped again in the currency market, and soon falls below the psychological threshold of 6.4 yuan per U.S. dollar. Experts predict that for a long time to come, RMB will embark on a track of moderate depreciation. Facing the possibility of wealth shrinkage, how should Chinese people invest to prevent themselves from being impoverished in 2016?
Housing market: denominated in RMB, the market still has room for gains
Property investment has been the favorite of the public. But since the introduction of the most strict macro adjustment policy in 2009, the overall Chinese housing market has slid from the fast-asset- appreciation golden age to silver age.
Currently, excessive inventory and serious polarization are the major problems existed in China’s housing market. Under the background that the government has frequently loosened regulations on real estate market, housing markets in first tier cities, including Beijing, Shanghai, Guangzhou and Shenzhen, have continuously heated up.
Shenzhen even witnessed sky-rocketed price of 100,000 yuan per square meter for new houses. Given siphon effects on industries and talents result from unbalanced urbanization level across the country, Wang Jianlin, the richest man in Asia, once said that “housing prices in first tier cities [in China] will keep rising, with no upper limit”.
Unfortunately, property investment is available to only a few people, though it is profitable. Because in addition to various regulations restricting the purchasing, another barrier is extremely high prices—in the four first tier cities, only Guangzhou’s average house price is below 40,000 yuan per square meter. The public cannot afford such high costs.
In the future, population of third tier and fourth tier cities will continue to flow into first and second tier cities. Currently, third and fourth tier cities are facing excessive inventory and poor sales. But media professional Shi Shusi is in the view that if a third or fourth tier city is located in metropolitan region with convenient transportation, core industries as well as ideal living condition, it could still be a good investment destination even though the population size is smaller.
Besides, the universal second-child policy is real good news to real estate. The policy is expected to refuel demographic dividend that will soon ended, and create impetus for housing market.
Stock market: rosy market trend next year
Luo Shanqiang from Galaxy Securities is optimistic about the stock market for the whole year in 2016. He believes that there’s high probability that Shanghai Composite Index will climb to around 5000 points. But there are not many chances for ChiNext Index to hit a new high, and the index is likely to fall back to slightly above 3300 points. The overall market will see tremendous change that incubates profitable opportunities next year, after the pullback in this December. Normal investors are expected to gain 20 percent return, and more shrewder investors can even gain 30 percent or 50 percent return.
What will drive the market higher? Luo believes that the fundamentals in stock market will be optimistic, despite the economic fundamentals will remain unsatisfactory. The reason for rosy fundamentals of stock market is that sufficient capital is expected to flow into the market. Besides, growth stocks in certain sectors are profitable, and investing in undervalued stocks may provide reasonable return. Last, monetary policies and fiscal policies are expected to be favorable to the stock market.
Therefore, Luo estimated that the stock market may hit the bottom in February at the latest, and start a moderate bullish market for six or eight months afterwards. He predicts that Shanghai Composite Index will hit the peak of at least 5100 points.
Collectible investment: difficult to protect rights and interests under imperfect supervision system
When per capital GDP of a country exceeds 4,000 U.S. dollars, the structure of consumption and investment may undergo tremendous change. China reached this level in 2010. Since then, spiritual and cultural spending has surpassed material consumption for the first time with the rising of middle class. Service industry and cultural industry are the leading contributors to the GDP growth.
Take box office for instance, in 2014, China record a growth rate of 36 percent, five times that of GDP. Collection boom is another hot spot. Someone even applied Warren Buffett’s famous investment philosophy “be fearful when others are greedy, and be greedy when others are fearful” in the artwork market. Whether it is time for investing in artworks?
China’s per capital GDP is rocketing to 8,000 U.S. dollars now, and the country already has hundreds of millions of collectors. But Shi pointed out that as the supervision system is not perfect, and there are tons of counterfeits in the market, rights and interest of collectors can hardly be protected. Bubbles on the market are increasing.
So here shares a popular word from the circle, which could be rendered as “if you love a collectible, you will be happy even though you later get know that you paid much more price than its real worth”. If you agree with this word, you may just go ahead.
Gold: downtrend may not end, and investors should buy low in batches
Is the gold worthy to own? Analysts said that investors usually regard gold as the weapon against inflation, but it can also be used to hedge the deflation in fact.
According to annual report of 2013 named as Gold Investor: Risk Management and Capital Maintenance and issued by the World Gold Council, gold price trend has always been independent from changes of other assets value. It means that investment system of precious metals is more independent, and their trends are easier to be expected with fewer risks, when compared to other financial management models.
Currently, central banks of countries in the emerging markets are actively buying the gold. China focuses on RMB’s internationalization, starts to disclosure its holding volume on gold, which has not been revealed before. China has averagely increased gold purchase by over 10 ton every month since July, with gold reserve ranking No.5 in the world. Under the background of increasingly unstable financial market, every country is increasing gold purchase to improve their credit reliability. As we know, gold is regarded as safe asset.
“Gold price now is at a phrased low, but its downtrend may not end, therefore, its investment value is not obvious.” Dong Bin believes that high-end clients could consider buying some gold at low, and better in batches to lower the costs so that to hedge the uncertainty of future economy and global political situation.
Five black swans in 2016: keeping close eye on factors really influence your investment
There are many people predicting black swans at the end of a year. And the following ones are more set with “Chinese features” and they are ranking based on star level.
No. 1
RMB exchange rate to decline
Probability: ★★
Impact: ★★★★★
The market now expects that RMB exchange rate will depreciate, but slowly step by step in a planned way, with a decline rate of 5 to 10 percent. A worse situation may be that RMB will greatly depreciate by 20 to 30 percent in a short term under the connivance of the government and bloodthirsty capital in the market.
China is one of the largest trading countries in the world, and RMB’s depreciation will hit other “soft” currencies based countries. Currencies of Brazil, Australia, Malaysia, Argentina and etc. are closely related to China’s import, and Korean Won, New Taiwan Currency and Thai Baht, which are highly related to China’s export and import trade, will suffer from huge pressure.
Strategy: To keep assets in overseas markets, and leaving debts inside of China.
No. 2
Dramatic reversal of H shares: Hang Seng China Enterprises Index to increase by over 50 pct, and Gelonghui HK A100 Index by over 100 pct
Probability: ★★★★
Impact: ★★★
In terms of H shares, current market does not follow the valuation theory and model, and investors have been hit by the market for a long term to constantly think that there are no chances in the H-share market, no matter how much the H shares are underestimated or what happens. Most investors are depressed about the H shares, ignoring the fact that they are dramatically underestimated. However, it is very likely to hide a huge opportunity.
Strategy: To adjust assets allocation proportions of A shares and H shares from 2:8 to 7:3 or even 8:2. Such move will make investors not suffer the losses at least, which usually means achievement.
No.3
Oil price to greatly rebound from bottom, up by over 80 pct
Probability: ★★★
Impact: ★★★★
Oil price will be a great uncertainty in 2016, worthy to be invested. Oil is the black gold. We cannot ignore it, after its price declined: it dropped below 40 from 100 during the whole year, and will possibly soar to 70 from 35 in next 12 months. In fact, every time when the oil price fluctuates at low, it will soar by over 80 percent in next 12 months.
Strategy: to Deploying Russian currency and stock market. In terms of plummeted oil sector, oil & gas sector and oil service sector, 2016 is likely to become the best investment opportunity.
No.4
Russia, instead of UK, to drag Europe into crisis
Probability: ★★
Impact: ★★★★
The market now consistently expects that the UK may carry out public voting to separate itself from the EU, triggering chain reaction to cause crisis in European currencies and debts. But in fact, everybody knows that the UK and EU have always been in harmony seemingly but at variance actually, with very weak integration in economies. Therefore, the real threat will come from Russia.
It is calculated and measured that Russian finance will face a possible crash, if crude oil price drops to 30 U.S. dollar and maintains for a while. Russia owes the European countries about 130 billion U.S. dollar, and these debts expire in 2015. It is very likely to drag the weak European economy into crisis again, if Russia widely breaks the contracts, and carries out a large scale of write-offs.
Strategy: It is worthy to cautiously invest in Russian currency and stock market, and also the oil price. Investors could regard GBP and Euro as short selling targets in the whole year of 2016.
No.5
Too fast interest rate rise by Fed to trigger new round of global economic recession
Probability: ★★
Impact: ★★★★★
Too fast interest rate rise means that the Fed will possibly raise the interest rates for three to four times in 2016, which exceeds the market expectation. It will cause rapid withdraw of capital from emerging markets, spread the sovereign debt default risk worldwide, and trigger a new round of economic recession. Theoretically, the Fed could not make such stupid mistake. After all, the U.S. will not have auspicious days, if other countries are sank into deep crisis. The Fed raised the interest rates after a long delay, which shows that it is very cautious to use the interest rate rise tool.
But it does not mean that it will not do that. There are almost no measures can be taken, if the Fed intensifies the strength to raise the interest rates out of expectation and market tolerance.
Strategy: Cash (U.S. dollar or HK dollar) is the best asset. Investors can keep the cash for tourism. It is better for investors to go to the North Pole, and you cannot come back in two or three days.
It is partially reprinted from Stories about H shares, and related viewpoints are for reference, which are not suggestions on investment.
