Bearish Canada, bullish Chinese investors pulling investment

I was just on a call with Tim.

This is one of many calls that we have during the day.

I randomly just call him up and either word vomit, rant or listen to his extremely insightful views on the economy.

During this particular call, we were chatting through some topics that we were going to write about for a brokerage.

Me being me, I started to really get into it.

Tim goes, 'erm, I think that's something for the premium, David.'

With what's going on at the moment in China, I'm harking back to looking at second order effects of things, now that COVID isn't necessarily front and centre of every single idea that we can think of.

Basically, we're going back to pre-2020 Macrodesiac and looking at the ideas that are cheap but have the potential to have big upside.

Let's get into it.

A third of Vancouver's Real estate is owned by chinese buyers

That's a bold statistic, but one that is true as of 2015, so I'd gather that it is even more now.

This means that Chinese ownership of Vancouver property accounts for a nominal value of $29bn - a huge amount - and again, probably even more now.

Over the last few years, Chinese eyes have shifted over to Montreal and the capital Toronto for inward property investment.

The Greenland Group completed a huge block in Toronto's downtown in 2019 called Project King Blue, a block made up of over 900 apartments.

Here's their share price just to bring it back to markets.

We are surely aware of what's happening in Chinese real estate at the moment.

I don't think we need to go through that again since we've been talking about it at length for a good while now.

But the point I am alluding to is this.

If Chinese investors are getting concerned with what's going on back at home, coupled with the fact that Canadian property is in a massive bubble, then could it be time for them to get more liquid...

Take their gains and run?

Canadian house prices are in fact starting to turn over

Take a look at this chart.

Seems like Canada's housing market is entering British Colombia - bear territory.

This is not surprising when you look at where the country's private debt to GDP currently sits.

At these levels, you would expect something to break, and it feels like it should be happening when private credit is pretty damn stretched, especially in the current economic context.

Canada's is one of the highest in the world...

For comparison, let's look at the US.

Yes, still high, but I'd argue that the US economy is more dynamic and can weather higher levels of private debt.

Canada is not in the same boat in my view.

But let's get back to the point here.

If Chinese (rich Chinese) investors do want to become more liquid, what could this mean for the Loonie?

Well, selling houses would mean some demand for the Loonie initially, but they would probably want US dollars.

Enter USDCAD

I am, if you didn't already know, 90% of the time a dollar bull.

I think a bullish dollar favours how I look at markets and things tend to be clearer in a bullish dollar regime for me.

So I'm pretty happy with this current set up.

I am long from 1.2719 currently, so a touch above current price.

Technically, we are above the 50, 100 and 200 daily moving averages and the macro backdrop is indicating some uncertainty, with tapering coming up, the China issues potentially spilling over and another key factor of energy prices perhaps leading to some dampened consumer demand, although judging by today's US retail sales, this hasn't necessarily come to light yet.

So we have a few components to look at there, but ultimately, I feel this is a beneficial environment for the dollar to thrive in and less so for CAD.

There is a key level approaching in Brent too, Canada's largest export...

If we start to see some downside in oil, this is certainly CAD negative and dollar bullish, alongside the other off the wall factor of Chinese investors pulling cash out...

And one thing that commodities have told me this year is that they can literally turn on a penny.

When you have anomalous price moves, they can fall just as fast as they have rallied.

Let's check some out starting with lumber.

And here's iron ore.

 And finally, here's platinum.

With OPEC recently willing to up its production pretty considerably, I'd bet on oil facing a similar fate to the 2021 commodity price rallies too.

Something else that caught my eye as well was something that had occurred last year.

This is very much USD related, however.

Check out the part here with regards to banks having to lower their GSIB scores into year end.

I think the same thing will happen this year end, leading to the dollar strength.

This is one to definitely keep an eye on over the next few months...

Bottom line: I am bullish USDCAD.