Key points
- There is an opportunity to take advantage of the contagion effect created by the US real estate bull run, the same one Buffett is on.
- Spreading into China, investors’ willingness to embrace government stimulus led KE Holdings shares to double.
- Analysts have upgraded the stock, while other institutions have also bought it over the past month.
- 5 stocks we like most from Alibaba Group
Now is your chance to profit from one of the biggest trends in the US economy today. Warren Buffett spotted an opportunity in construction stocks, buying stocks like DR Horton NYSE: DHI and others, predicting a residential construction boom that will soon hit the market. While there is still time to get into the home building industry, there are plenty of other places to make money.
However, not all real estate securities are created equal. Around the world, the Chinese real estate market worries international investors, but that is a thing of the past. As the CSI 300 Index (China’s version of the S&P 500) has rebounded from five-year low prices, some US investors and institutions believe that stocks like KE Holdings NYSE: WEEK could soon see a triple-digit rise in a rapid comeback.
Mega investors like Michael Burry (the guy who defined the 2008 financial crisis) and even Ray Dalio have entered the Chinese markets. Purchasing in iShares MSCI China ETF NASDAQ:MCHI, Ray Dalio admitted to Wall Street that he sees a new bull running ahead. In the style of real value investing, Burry invested directly in the nation’s blue-chip stocks Alibaba Group NYSE: CHILD.
Contagion effect
Investors looking to gain exposure to real estate may have exhausted their options in the U.S. stock market. After all, DR Horton and others are hitting all-time highs and offering very few, if any, discounts today. For all the explosive growth they may have, future earnings are already priced into the stock price.
Outside of the direct real estate or investment trust (REIT) sectors, there is little upside room left. Also the names of transactions and operations such as the Zillow Group NASDAQ:Z offering just a 2% upside in its $58.8 price target after hitting a new 52-week high price.
At the risk of a contagion effect in profit-taking among US stocks, more investors could join Burry and Dalio in their hunt for real estate value in other nations such as China.
You see, the Asian powerhouse’s stocks are driven by fear today, so the average dividend yield (3.6% for the ETF) is much higher than today’s Chinese government bond yield of 2.5%.
By taking fear out of the equation, any other stock market would have attracted a massive influx of investors considering the upside opportunity in stocks versus domestic bonds. Here’s why Chinese real estate stocks could give you additional alpha during the recovery.
In 2023, approximately 23% of Chinese citizens have chosen to invest their capital in stocks. Most Chinese investors prefer more traditional investments such as real estate. Betting on an economic recovery, Burry and Dalio could point you towards KE Holdings.
About to explode
Realizing how much the market had fallen, the Chinese government decided to increase its stimulus efforts. By injecting up to $278 billion into the economy and lowering interest rates, Chinese consumers and investors could soon get back in the game and move some money around.
Inflation data in China was stronger than expected last week, coming in at 0.7% versus economists’ consensus of 0.4%; it can be said that the latest stimuli are making their way to Chinese consumers. This doesn’t mean you can blindly bet on Chinese stocks; here’s who buys KE today.
Investment house and bank Barclays New York Stock Exchange: BCS increased its stake in KE stock by 82% in February alone, seizing the latest tailwinds pushing the stock’s drivers. Vanguard Group followed suit by increasing its exposure in the stock by 0.2%, which works out to about $830,000.
There is another institution that indicates the potential advantage of this game; HSBC holdings New York Stock Exchange: HSBC raised his price target on the stock to $24 per share, predicting a roughly 100% rally from today’s prices.
Barclays has left its price target of $28 per share unchanged throughout the year, predicting a 122% upside in the shares that have been quietly accumulating.
Considering that KE stock trades at a price-to-earnings (P/E) ratio of just 11.8x, compared to Zillow’s significantly higher 33.2x, you can rest assured that you can find a steep discount on the Chinese version of the trading platform. online real estate transactions.
If investing in China is still too risky for you, there is a way to diversify into real estate. THE Vanguard Real Estate ETF NYSEARCA: VNQ It gives you broader exposure to the industry without additional risk.
However, if you also believe that China is on the rebound, with stimulus about to spur more real estate activity, then KE could be worth the bumpy ride to excess returns.
Before considering Alibaba Group, you’ll want to hear this.
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View the five stocks here
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