Returns from equities may outstrip gains from real estate transactions

The Chinese stock market may outperform the housing market in the next decade, reversing the trend seen in the previous decade, economists said.

Discussions on whether investors should "sell housing to buy stocks" have spread across domestic media recently. This asset allocation strategy, however, has proven to be unsuccessful in the world's second-largest economy over the past decade.

From 2008 to 2018, the benchmark Shanghai Composite Index halved to 2493.90 points. In sharp contrast, the price of second-hand properties increased 3.6 times on average in China's first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen, according to real estate agency Centaline Property.

As of Thursday, the Shanghai Composite Index was up 10 percent this year, with turnover doubling to more than 200 billion yuan ($29.8 billion) per trading day. Meanwhile, the total area of properties sold in 30 major mainland cities declined 14 percent year-on-year in January, according to Shanghai-based housing market data provider CRIC.

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, said financing stock investments by selling properties is too radical for many investors. "Family wealth should not be allocated largely on one type of asset."

"But, over the next decade, the Chinese stock market will offer more investment opportunities than the housing market", as excessive money supply－the major driver of property prices in the past decade－will not continue.

"In the next decade, the housing market will remain stable and be effective in preserving wealth. Room for appreciation will fluctuate with the growth in broad money supply, or M2," Dong said.

Echoing Dong's sentiments, Jiang Chao, chief economist with mainland-listed Haitong Securities, said decelerated money supply growth will weaken inflation expectations and thereby the attractiveness of real estate, which outperforms financial assets during inflationary times.

"The valuation level is the other major factor supporting our view that the stock market is now more worthy of investment than the housing market," Jiang said in a note in February. Properties now have the highest valuation among major asset categories in China, whereas stocks are the cheapest, according to him.

Yang Delong, chief economist at Shenzhen-based First Seafront Fund, added that as China's economic upgrade deepens over the next decade, the competitive landscapes of various industries will become more dominated by top players, whose profits will continuously grow and buoy the stock market.

In the mid term, the A-share market is likely to see an overall positive performance this year amid policies to bolster growth and the growing profits of listed companies, said Gao Ting, head of China Strategy at UBS Securities.

Positive external factors have also grown, analysts said, as the US Federal Reserve has shown patience in raising interest rates, and trade talks will possibly bear some fruit, and foreign capital inflow is set to pick up speed this year.

"Short-term stock market fluctuations are still inevitable," said Wang Yi, chief strategy analyst at Shenzhen-based Great Wall Securities. "In March and April, economic data will probably diminish the current high investor spirits."

The Shanghai Composite Index edged down by 0.34 percent to 2751.80 points on Thursday, registering a 2.59 percent gain so far this week.