Saturday September 3rd, 2022

Welcome to The Weekly, where our team shares a few thoughts to take you into the week. This week’s thoughts have been brought to you by Aayush Abraham, Manager - Investments at Rupeeting.

China’s Slipping, and That Maybe Good for India

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For the last two decades, China has been the default choice for all global investors. However, there is a change in the world order, which seems quite anti-China, especially when it comes to trade. Exacerbating this movement have been some recent fundamental developments in China.

  1. The ongoing housing crisis
  2. A zero-tolerance policy towards COVID

The above have gotten China slipping when it comes to growth, and the only other high-growth and strong-economy option available for investors is India! Welcome to an era where India can get the lion’s share of foreign allocation towards emerging markets, and in Asia.

What’s happening in China?

  1. The historic fall of Evergrande, labelled the world’s most indebted real estate developer, with US$ 300 billion owed to various parties, including the home buyers, caused a cascading effect of insurmountable proportions.
    1. 20 out of top 30 developers of the country crossed the final red line (a limit that, if crossed, legally restricts debt intake into developers), incapable of getting in more cash
    2. Property investments are down 12% YoY and construction has fallen by 45% in a year. This is coming from a country that has had more than 70% of all its income in real estate
    3. The mortgage boycott has stacked US$ 222 billion worth of mortgages in the “at risk” category for default
  2. The one thing that could’ve made this worse was another lockdown. Chengdu, home to more than 95 listed companies from IT and machinery sectors, has been put under an indefinite lockdown due to a spike in cases, with all 21 million of it’s population being tested.

<aside> 💡 Our view: India has already been emerging as a strong contender on investments in manufacturing. With the markets, FIIs may have gone out in the last few months, but with home markets for the West potentially in recession, and China slipping, India turns out to be the hotspot! Flows will provide support to international and domestic shocks impacting the markets.

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An Idea - Affordable Housing

Yes, you read that right. The affordable housing movement, with the Government at the helm, has been able to penetrate the housing market sales in the past decade. This is great news for microfinance companies that provide affordable housing loans!

Some selling points for the growth of this segment: