Most of the mainstream media has been focused on China’s handling of the pandemic. I think that’s totally irrelevant because China is such a large and vast country that we only see a fraction of what is really going on. We also see things through a single prism, often with political biases.

But that’s not the point of this note. My point is to get you focused on a major investment theme that is likely to have a significant impact across all investment classes, including residential real estate. Particularly in Australia.

There have been significant signals that China will open up quicker than expected over the past week. Keep an eye on this over the holiday break. In my note last week, I pinpointed my four key investment themes, all of which will be driven by China’s opening.

Peter Esho

Building the 2023 investment plan

At the end of each year I like to sit back and think about the key themes that will dominate markets in the coming period. It’s so much about predicting but always staying on our toes as investors, being proactive rather than reactive and thinking about the future before it arrives…

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4 months ago · Peter Esho

Most of 2022 has been characterised by rising interest rates and money flowing out of the financial system. That is why real estate prices have come down a little. When money is cheap and flowing, residential real estate does well. When money is tight, the opposite. It’s all about liquidity.

We’re often trained to focus on the US, which is the world’s largest economy. But we sometimes ignore the impact that China has on the global stage, particularly when it starts to have a significant impact on investment flows.

I can go into more technical reasons why I’m so positive about China, such as the growth in Chinese money supply in recent weeks and rising credit impulse. But I won’t, because I want to keep it simple.

The key thing to understand is that we’re no longer in a zero interest rate environment. We’re back to a more balanced rate setting, which isn’t a bad thing.

We need to be used to mortgage rates in the order of 3-5% and not 1-2%, which was ridiculous. The key to survive and thrive over the next 5-10 years is to focus on income growth, real estate assets that will BENEFIT from rising interest rates.

Real estate income (rents) are rising. They will continue to rise further once China opens up and commodity prices like iron ore, coal, gas, gold, zinc, lead, nickel and rare earths start to rise too. The jobs market is still very strong and unemployment is at levels we haven’t seen ever.