Thursday, March 24, 2011

China's Ghost Cities and Malls

SBS Dateline has a very interesting documentary about the Chinese real estate, the ghost cities to several part of china, the in-famous Dongguan mall (largest in the world) which is virtually empty, the ridiculous price of real estate that can not be possibly purchased by working people, and is only used as a store of value for the rich.

There are currently 64 millions vacant apartments in China where 160 millions people could live (assuming 2.5 persons / flat). Jim Chanos also previously said there is enough planned commercial real estate to provide a cubicle for every Chinese citizen.

Since China's real estate is not highly leveraged (50% down-payment requirements), there may not be a large collapse as in the U.S.A, but it's quite possible the number of transactions decrease dramatically, as sellers don't want to sell at loss and buyers do not want to over pay.

How can we take advantage of the coming real estate bubble burst in China?
First, the timing is very uncertain, as the Chinese government may be able to keep the game going for quite a while, so we'd have to find a financial product that does not decay over time.

One of the best way to invest in this is to short commodities themselves, commodities producers stocks and country index heavily relying on commodities such as Australia or Canada.

For most investors (including myself), it's quite difficult (and not really recommended) to short stocks and commodities. However, there are some short ETF leveraged or not. Please bear in mind that some ETF are not well structured and may make you lose money even if the underlying decreases in value (more on that in another blog entry).

Here's some ETF ideas to take advantage of the burst of the real estate bubble in China (I have not studied those in details, they are just starting points):

* PowerShares DB Commodity Dble Short ETN (DEE) - To short commodities. (Warning !!! It's leveraged) -
* ProShares UltraShort DJ-AIG Commodity ETF (CMD) - To short commodities. (Warning!!! it's leveraged) -
* PowerShares DB Commodity Short ETN (DDP) - To short commodities - non leveraged -

Usually for short ETF, I wait for a few years to have an history to see how well they track the underlying index, as some as just going to go to zero (by design or incompetence).

I could not find any ETF to short Australian and/or Canadian stock indices.

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