China’s massive real estate market is collapsing before our eyes.
But like all crises, the well-prepared will earn massive profits… while others will watch their portfolios plummet.
After researching the news out of China closely, I’ve learned the U.S. and Western Europe’s Great Recession was mild in comparison to what China faces today.
I would know. I was a trader at a hedge fund during the Great Recession. And it felt like the end of the world for the U.S. economy.
Today I’m going to share what’s happening in China’s critical real estate sector and why it’s collapsing. I’ll also reveal how the fallout will impact certain industries in a way you’d never guess… And how you can profit from it.
The Collapse of China’s Real Estate Market
Germany is Western Europe’s second-largest country by population with 83.3 million people. Every German man, woman, and child could live in just China’s empty apartments. Comfortably.
Country Garden and Evergrande are two of the largest real estate developers in China. The first is already bankrupt and the second is teetering on it.
Together, they have $532 billion in distressed or defaulted debt.
That’s 2% of China’s entire gross domestic product (GDP), or the total value of all goods and services nationwide. And it’s just the beginning.
China is home to over half of global steel production.
Most goes into domestic real estate construction. Or at least, it used to.
China makes over half of the world’s cement.
In 2022, China used 20 times more concrete than the U.S. And most of it goes exactly where’d you expect: real estate projects.
The sector that’s grinded to a halt.
It’s not just the economy that’s reliant on real estate. 70% of Chinese citizens’ wealth is in real estate.
That’s partly because of restrictions on other types of investments… But to put it in perspective that’s almost 50% more exposure than Americans have.
Despite the government’s best efforts to hide it, this level of dysfunction can’t remain hidden.
China’s shadow banks are being revealed to the world, and it isn’t a pretty sight.
“Shadow banks” are the term for companies that act like banks but aren’t regulated like them.
To get even more leverage, real estate developers turned to shadow banks for more debt.
Zhongrong International Trust Co is a major player in China’s $3 trillion shadow banking sector.
That’s the size of Britain’s whole economy.
The company’s finances are being dragged down to exposure to Chinese real estate.
Earlier this month, the problems couldn’t remain hidden any longer. Zhongrong started missing payments on investment products it sold to Chinese citizens.
That’s like JP Morgan being unable to make payments on a 5-year CD because it ran out of money.
These people were expecting a modest, safe return… Now, they may get nothing.
How to Profit from the Impact on the U.S. Economy
For those who understand what’s going on, there is huge upside for parts of the U.S. economy.
Remember all that steel and cement production that used to go into Chinese real estate?
It needs a new home badly, and the market knows it.
Since October 2021, the price of steel rebar in China has fallen 37%.
Over the same time period, steel prices are up 109% in the U.S.
That’s in part because while China is wavering, the U.S. is experiencing an industrial revolution.
Hundreds of billions of dollars’ worth of investment capital is coming back to the U.S. as China’s real estate market is collapsing.
And the re-industrialization of America is a theme I cover often here at Intelligent Income Daily. Because we’re focused on guiding you to safe, reliable income-producing plays that’ll help you sleep well at night.
So how can you profit from it?
One easy way to capitalize on this upswing is to own Jacobs Solutions Inc (J), formerly Jacobs Engineering.
Jacobs Solutions has been a construction heavyweight since 1947 and is headquartered in Dallas, TX.
The dividend is modest at 1%, but it’s grown 53% since 2019 and never missed a beat during the pandemic.
Jacobs Solutions is winning all kinds of contracts from improving the electrical grid to building the futuristic Houston Spaceport.
And as commodity prices finally soften thanks to China’s weakening economy, we expect Jacobs’ margins to improve dramatically.
Add its growing backlog thanks to the reindustrialization of America, and its outlook is very bright.
Take advantage of this trend before the rest of the market catches on.
Happy Investing,
Stephen Hester
Analyst, Intelligent Income Daily
P.S. We share even more hidden trends in our High-Yield Advisor service. Our Wide Moat Research team is watching many macro shifts take place and wants you to be poised to profit from all of them. To learn more about this service check out Brad’s presentation here.