Gauging the Sector Impacts of a Potential Chinese Housing Recovery

Over the years, our credit research team has closely followed the state of the Chinese housing market and its implications for global sectors. After years of overbuilding, the Chinese housing market entered a correction in the late 2010s. Since then, we have observed false dawns in 2023 and 2024 but no sustained recovery. Recently we read a new research report on the potential bottoming of the Chinese housing market, supported by three factors.¹ First, the correction has now lasted about as long as, or even longer than, similar previous corrections in other countries. Second, the inventory overhang is less given many years of lower construction. Third, the market has seen an uptick in organic demand (i.e., not driven by government stimulus as opposed to previous false recoveries). Despite this more optimistic take, the report expects this to be a tentative recovery concentrated in Tier 1 and select Tier 2 cities.

Gauging the Impact

We believe the first-order impact of a recovering Chinese housing market will likely be felt by the Metals & Mining sector. Roughly from 2000 to 2015, Chinese housing was the most important driver of demand in that sector, from our observations. Since then, other factors like electrification have emerged to offset weak new housing starts, but an improvement in China’s housing market may create an even stronger long-term upcycle for Metals, in our view.

Another sector to keep an eye on is Luxury Retail, which has underperformed in recent years. As a result of falling home prices, Chinese consumption has been weak overall. If these prices have now bottomed, then investors could see a pick-up in Chinese discretionary consumption with Luxury Retail in line to be one of the likely beneficiaries. Our analysts believe the positive wealth effect from an improving housing market will benefit high-end shopping mall operators and premium brands, as well as extend to the Macau gaming sector.

Many other sectors are likely to be impacted by the Chinese housing recovery, but we wanted to point out the potential upside for these two to start. Our team members will continually update our views as the potential recovery evolves, ensuring our investment positioning reflects our latest thoughts.