In the economic environment which preceded the March 2020 crash, with stock markets where ultra-high valuations were the norm and investors dreaming about achieving generation-defining wealth by investing in tech companies run by individuals who apparently have never used the word “profits” given the complete absence of even remote perspectives pertaining to just that (a climate which has, after the recovery, returned), even suggesting land as an investment option seemed… well, downright peculiar.
Land doesn’t “disrupt” and there aren’t exactly all that many fancy buzz word-laden presentations involving this asset class, so it seemed that land investments had lost their luster in China and beyond. Fast-forward to the hash realities revealed by the 2020 pandemic-generated economic as well as financial crisis and it has become apparent that from many perspectives, the proverbial emperor had no clothes.
Never before had so much time passed between recessions as after the Great Recession and until the 2020 economic crisis (with a recession pretty much inevitable, with some observers even using the term “depression” due to the aggressive GDP contraction and unemployment combination in certain jurisdictions, including the United States) and as such, decision-makers from all around the world were continuously suggesting that the world was in a “new paradigm” situation, with all of the problems which had made the Great Recession possible in the first place fixed and society ready to move on to its glorious future, a future involving anything from autonomous electric vehicles to space travel.
If anything, 2020 has proven that it might be wise to tone our perception of reality down a notch or two because as all intellectually honest market observers were able to find out, the COVID-19 pandemic revealed that the world’s most developed nations (which were on the front line in light of being densely populated and representing major travel hubs, for obvious reasons) ended up failing miserably on the medical front not due to Earth-shattering high-tech issues but rather due to a severe shortage of the most basic supplies: masks, medical gowns and even essential medicine.
Again, most likely the number one “the emperor has no clothes” moment of the 21st century in terms of severity and needless to say, these developments made investors second-guess many other assumptions that were considered quasi-axiomatic. If the world’s most highly-developed medical systems were caught completely off-guard by the COVID-19 pandemic and so many issues were caused due to shortages which could have easily been avoided, what else is it about society as we know it that we thought ran very smoothly but actually doesn’t?
As such, it was only a matter of time until the economy in general and especially the financial system in particular entered the spotlight. All of a sudden, it seemed that many of the companies which were perceived as being on a surefire way to success no longer looked all that glamorous and the same way, especially in light of the unprecedented monetary as well as fiscal stimulus measures that were taken, asset classes which seemed to have lost their luster all of a sudden became interesting again.
Among them… of course, land.
As trillions upon trillions of dollars were injected into the financial systems as well as “real” economies of country after country, market participants came to a realization that is ultimately a matter of common sense, yet had been all but ignored for years: while central banks can print unlimited quantities of fiat currency, there is no such thing as an entity that can “print” millions of acres of land, for example. Therefore, investor after investor ended up realizing that perhaps gaining at the very least a bit of exposure to this asset class might not be the worst idea in the world.
This, however, is a very slow process.
Expecting land prices to soar after these realizations would be nothing short of naïve, especially given the severely deflationary forces that are in play in light of the fact that economies were forced to essentially shut down for unprecedentedly long periods of time. If anything, threats pertaining to the risk that existing land investors end up being forced to liquidate to cover various expenses outweigh threats pertaining to the risk that there will be a sudden rush to buy land… that is most definitely not how things work.
No matter how logical a certain investment option may seem given a certain context, in our example land in the context of unprecedented monetary as well as fiscal stimulus, it oftentimes takes a fair bit of time until the market catches up. A textbook recent example to that effect was represented by precious metal prices in the immediate aftermath of the Great Recession. Initially, despite the fact that all of the conditions necessary for precious metals to thrive seemed there, prices initially corrected right alongside stock prices until finally heading north, with all-time highs being reached back in 2011.
Simply because immediately after a financial panic, the market enters full-on survival or deleveraging mode and as such, cash becomes king for a while, with most of the other assets seemingly correlated, as investors are forced to liquidate in a desperate attempt to seek refuge in cash positions. As time passes and the dust settles, with the world gradually wrapping its head around what happened and what the longer-term implications are, things change.
We believe the exact same principle will be valid when it comes to land prices and as such, there is no time like the present to position yourself accordingly by deciding what kind of exposure to this asset class it makes sense to seek and putting together a battle plan. While the ChinaFund.com team specializes in Chinese assets and primarily caters to the needs of clients in this direction, we will happily help with pretty much anything else pertaining to wealth management and should you be in need of assistance, we are only an email or a message away.