China’s real estate woes are still visible from the rear view mirror, but the government hopes to finally drive it out of viewing distance with the addition of stimulus measures. One of those measures includes the establishment of a real estate fund to the tune of $44 billion.
The fund will help assist distressed real estate property developers amid a debt crisis that could spur a wave of defaults and upend the real estate industry. Last year’s Evergrande crisis was one of the largest dominoes to fall, which has left the housing sector and overall economic growth in the country reeling.
“The move would mark the first major step by the state to rescue the beleaguered property sector since the debt troubles became public last year,” a Reuters report noted.
“We don’t know details of the fund yet. If just 80 billion it’s not enough to solve the problem,” said Larry Hu, chief China economist at Macquarie. “I believe the fund would be part of the bigger package to solve the current debt and mortgage crisis, because it alone would not solve all the problems … we need a real estate recovery.”
A Real Estate Recovery Play
Distressed sectors could lead investors to value, and with China’s government ready to prop up the real estate development sector, opportunities exist. One such opportunity is the Global X MSCI China Real Estate ETF (CHIR).
CHIR seeks to provide investment results that generally correspond to the price and yield performance, before fees and expenses, of the MSCI China Real Estate 10/50 Index. The fund invests at least 80% of its total assets in the securities of the underlying index and in ADRs and GDRs based on the securities in the underlying index.
The underlying index tracks the performance of companies in the MSCI China Index (the “parent index”) classified in the real estate sector, as defined by the index provider. Summarily, ETF investors get the following:
- Targeted exposure: CHIR is a targeted play on the real estate sector in China — the world’s second-largest economy by GDP.
- ETF efficiency: In a single trade, CHIR delivers access to dozens of real estate companies within the MSCI China Index, providing investors an efficient vehicle to express a sector view on China.
- All share exposure: The index incorporates all eligible securities as per MSCI’s Global Investable Market Index Methodology, including China A, B, and H shares, Red chips, P chips, and foreign listings, among others.
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