Turmoil in China’s Stock Exchange Wreaks Havoc on REITs


Nov. 20 2020, Updated 1:18 p.m. ET

China’s stock market creates havoc

The first week of 2016 happened to be the worst for many investors across the globe. Apart from the oil turmoil, it was the slowdown in Chinese markets that created havoc for the week ended January 8, 2016. The trading was halted in both Shanghai and Shenzhen stock exchanges as they hit their circuit barriers. The People’s Bank of China set its daily yuan guidance rate to 0.5% weaker than the previous fix. This is assumed to be the largest fall since a near 2% devaluation in August 2015. Currently, the yuan trades at 6.5 per dollar, the lowest since March 2011.

The graph above shows the price movement over the week between the iShares US Real Estate ETF (IYR), E-House China Holdings (EJ), Leju Holdings (LEJU), and Xinyuan Real Estate (XIN).

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Impact of China turmoil on REITs

China’s stock exchange wreaked havoc on the global economy for the week ended January 8, 2016. The REITs market was no exception as the sector experienced a severe downturn during the week. The iShares US Real Estate ETF (IYR) and the Vanguard REIT Index Fund (VNQ) suffered blows as they ended the week with returns of -3.3% and -2.8%, respectively. Chinese ADR’s (American depositary receipts) that invest in real estate and services also suffered a major blow. E-House China Holdings (EJ) and Leju Holdings (LEJU) ended the week with returns of -5.2% and -10.8%, respectively. However, not all went bad for the real estate sector as Xinyuan Real Estate (XIN), a Chinese ADR, ended the week with positive returns of 2.4%.

Investors can expect REITs like StarWood Property Trust (STWD), Colony Capital (CLNY), and American Capital Agency (AGNC) to be impacted by the disturbance in China’s markets.


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