Churchouse Letter
November 2014         by Peter Churchouse

A $35 Trillion Dollar Bonanza

A Gigantic Tide of Capital Will Be Unleashed Across the World in the Next Decade... It's started already...

Inside This Issue:
A gigantic tidal wave of capital is set to wash through global markets over the next decade.
The repercussions of this potential $35 trillion bonanza will be felt far and wide... In some markets it already is.
And in a region facing a dismal economic outlook, we reckon it's time to buy!.

I recently dined with a Chinese tycoon, a friend of mine for more than a decade. In this part of the world, especially in matters of wealth, discretion is imperative. So I can’t reveal their identity, or even what line of business they are in. But suffice to say that this individual’s personal net worth is many times that of myself and many of my friends – combined. This individual is a multi-billionaire.

We normally talk about big-picture global strategy in our quiet get-togethers. Typically this person is looking to me with one question:

Peter, what's going on in the world that I need to know about?"

On this occasion, though, our chat was very different. We didn’t talk about their business. And we didn’t talk global macro. We talked about this person’s wealth. They wanted investment ideas. And crucially, these investments had to be offshore.

To reiterate, this person is right up there in the global league of the super-wealthy, worldwide. Some of our readership manages billions, but a far as I know they don't own them. This person does. And they wanted to start moving some of it out of China.

The initial focus of our discussion was real estate. The readership of The Churchouse Letter is global, but I suspect everyone reading this is familiar with the “Mainland Chinese people buying up real estate” theme by now. For instance, last July I wrote about this trend in terms of Auckland real estate in my AHA Digest (now Peter’s Perspective):

The role of foreign buyers in the market right now should not be underestimated. They are a significant force, and most are Asians. A meeting with a long-established lawyer friend this week said that his practice is dealing with 20-plus property transactions per week for Asian clients. He has taken on a small team of Chinese speakers to deal with this flow, and the deals are not just families buying a small apartment for own use or investment. New Zealand is simply tapping into the Asian money flows in a similar way as the US, UK and Australia are. Asians like the English common law system. They trust it, and that is easy to understand when one looks at the often unaccountable, corrupt regimes that many are forced to endure.

One thing is clear: the Chinese aren’t just coming, they’re already here.

Why are wealthy Chinese taking their money out of China? There are very good reasons. My tycoon friend, like thousands of other Chinese entrepreneurs, has made a fortune in China over the past 20 years. But opportunities to invest in the domestic markets are limited. The financial system is highly restricted and investing offshore is difficult. It is very hard to get money out of China, but getting easier. They see a need to diversify their assets.

Education is another big driver. There is huge demand from wealthy Chinese to educate their children overseas. If you are sending a daughter to London for university, then maybe it makes sense to buy a two-bedroom apartment for her to live in. In the United States, the number of Chinese student increased by more than 20 percent last year alone.

Personally, I believe there is a deeper reason for moving money out of China. And that reason is the Chinese government. To be more specific, there is a fear of political unrest.

Autocratic regimes are unpredictable. Rule of law and property ownership rights are vague and arbitrary in China, at best. Get on the wrong side of a government official, and you can find you and your wealth in the spotlight. That is the last thing you want in China.

A survey done by the Bank of China and the Hurun report recently surveyed nearly a thousand Chinese millionaires. Of those, 60 percent had either already emigrated, were in the process of leaving or were considering leaving. Sixty percent!

If you think you’ve seen a lot of Chinese money pouring into Western markets so far, then think again. You ain't seen nothing yet. A dribble is about to become a torrent.....

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