As we look to the near future, a significant signal has emerged that we cannot afford to ignore: by 2025, our economy is expected to enter a new phaseThis development comes on the heels of the United States implementing a series of three interest rate cuts, coupled with an unprecedented monetary easing strategy that has only happened once in the past fourteen yearsThese monetary policies raise crucial questions: Will home prices rebound? Could the stock market soar? Or will we witness a surge in consumer prices? What effects might we see on personal savings, debts, real estate investments, and stock portfolios?
In this discussion, we are delving into some hard-hitting contentWe’ll analyze various pivotal dimensions such as housing price trends, stock market valuation analysis, interest rate predictions, and the ongoing U.S
interest rate cuts to shed light on the overarching economic trend that is on the horizon.
First and foremost, we need to grasp a key question: how will this newly initiated monetary easing impact our personal finances? Essentially, there are two paths to consider: lowering interest rates and increasing debt issuance.
Lowering interest rates encourages capital to flow out from banks and into real estate and stock marketsWith interest rates decreasing, borrowing costs are reduced, making it more appealing for individuals and businesses to take out loans for investmentsThis restructuring of debt facilitates increased liquidity in the market, consequently driving asset prices higher.
The first vital judgment for us is to recognize that interest rates are likely to continue their downward trajectory.
Particularly noteworthy is that the United States has recently announced its third rate cut, which subsequently allows for potential easing of policies here as well
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As the U.Sengages in monetary easing, global capital tends to flow rapidly in search of higher returns, which may lead to some foreign investments flowing into China's domestic markets.
Although China's monetary policy operates independently, the shift in global capital patterns stemming from American interest rate reductions will indirectly influence domestic interest ratesOn one hand, increased foreign investment results in more capital in the market, potentially driving up asset pricesConversely, it may also heighten market volatility, adding another layer to the instability.
Currently, major cities in China are experiencing mortgage interest rates around 3-4%, while savings rates are generally below 2%.
Based on prior analyses, it’s projected that by 2025, mortgage rates could potentially decline to around 2.5%, while savings rates might plummet below 1%. When we consider these factors, it begs the question of how much of the approximately 140 trillion yuan in personal savings might escape into other investments? Moreover, will the 38 trillion yuan mortgage market continue to expand?
Turning our attention to the stock market, the substantial rise in A-shares observed at the end of September 2024 has ignited renewed optimism regarding the market's potential
Presently, we are situated within an oscillating range, with the daily trading volume in the A-share market sustaining between 1.5 to 2 trillion yuan.
It's crucial not to underestimate the significance of trading volume; we are observing a striking situation in which the overall market capitalization is approximately 100 trillion yuan, yet the float is less than 80 trillion yuanThis implies that the entire pool of shares could potentially be reshuffled in a mere two monthsDespite criticisms, the liquidity in the A-share market is undeniably robust.
Consequently, it raises another pressing question: will housing prices and stock markets have space to rise come 2025?
Many individuals are eager for a repeat of the monetary easing policies observed 14 years ago, particularly recalling the stimulus strategies from 2008. However, we must remember that such macroeconomic policies must catalyze substantial trading behaviors among market participants to yield tangible results.
In layman's terms, there needs to be a significant influx of spending, with consumers engaging in a robust buying spree for the economy to flourish
Unfortunately, the current landscape differs markedly from 2008.
Today, the real estate sector has surpassed a size of 400 trillion yuan, while the stock market has swelled to a valuation nearing 100 trillion yuanWith such vast bases established, the theoretical prospect for growth is quite limited.
Reflecting on the past decade, we have witnessed immense urbanization, characterized by mass migrations from rural to urban areasThis migration has fueled a rapid expansion of the real estate market, and the stock market has evolved from a few hundred companies to over five thousand listed entities.
This evolution can be compared to an individual's growth from childhood to adulthoodA child’s height may steadily increase until they reach eighteen, but the expectation for continued rapid growth thereafter is unrealistic.
When we consider housing prices, the crux lies in attracting new capital to take over existing positions
The harsh reality is that demand in the second-hand housing market across most cities is uneven, while supply continues to flood the marketSome premium properties in hot cities remain fiercely contested despite others facing significant inventory build-upIf the de-stocking period exceeds two years, the market will likely remain ensnared in an excess supply situation.
Moving forward, if new mortgage demands surge and the second-hand inventory remains at a manageable level, there may be some upward momentum in housing pricesNevertheless, this scenario hinges on sustained economic growth and increased resident income levelsWithout these supportive conditions, it will be arduous to dramatically alter market expectations any time soon.
Regarding the stock market, with limited available capital, a broad-based rally will be challengingInstead, more indicative of market behavior will be rotational structural trends
With over five thousand publicly listed companies, there are stark valuation disparitiesSome blue-chip stocks are undervalued while others sport staggering price-earnings ratiosIt’s impractical to anticipate a fervent rally akin to that witnessed in 2015 across all sectors simultaneously.
As a result, the likely scenario is sequential trading phases where one period favors blue-chip stocks while the next lifts technology stocksGiven the confined pool of capital, funds will inevitably rotateThis reality presents considerable challenges for the average investor, as misjudging stock selections could lead to substantial losses.
Looking ahead to 2025, the lingering effects of monetary easing will sustain a low-interest-rate environment, which will impact capital flows and asset pricesChallenges in investment will abound.
Nonetheless, it is also critical to recognize that numerous investment opportunities may arise within this broader context