In today’s Insider, we hope to help you gain some perspective on the slow-moving train wreck that is China’s pandemic response.
We’ll also answer why China has stuck to its disastrous zero-covid policy.
Here’s something that I haven’t seen anyone else say: given the efficacy of China’s vaccine’s, and the transmissibility of Omicron, China would have to vaccinate over 100% of its population to reach herd immunity. Yes, we realize that’s mathematically impossible! (For those of you interested, see the appendix at the bottom).
This means China is stuck with their zero-Covid policy unless and until they produce a vaccine that is as effective as Moderna’s or Pfizer’s, since they refuse to use non-Chinese vaccines (at least thus far). They have been playing for time and hoping their next generation vaccines would roll out before the damage caused by zero-Covid became intolerable. Well, that gambit appears to have failed.
Remember when New York City was anxiously counting our hospital beds and people were sleeping in stretchers in the hallways? Well, Manhattan has over 500 hospital beds per 100,000 people.
China has 6.46 hospital beds per 100,000 people.
You see where I’m going with this, right? Pressure is ratcheting up over there as the Chinese government has come to the conclusion that letting the disease run its course is too dangerous, and the populace is simmering with resentment over the lockdowns and the privations they cause.
Something is going to give. Who knows what form that’s going to take, but it’s not likely to just settle down and quietly be back to business as normal.
Why on earth am I writing about this in the Insider?
We live in an interconnected world, for better or worse. If there is a release-valve event in China, and that event has big shock waves, what’s likely to happen?
- There will be a capital flight to quality
- This means assets will be sold globally and converted to dollar assets
- Central banks will flood the markets with liquidity, quickly dropping interest rates across the yield curve by lowering the Fed Funds rate and quantitative easing (buying mortgages and bonds).
- A certain amount of that liquidity will be parked in real estate
New York City, the blue chip of all blue chip real estate markets will be an oversized beneficiary of that.
In Other News…
Knight Frank (a Douglas Elliman affiliate), published a great article about their global residential luxury market predictions. Here’s the link, but I will spare you the work of reading it. Here are the key points:
In spite of the obvious global headwinds, they expect 16 out of the 24 global cities they track to increase in price in 2023.
Knight Frank expects New York City residential real estate to increase in price by 2% next year.
94 percent of Mainland Chinese high net worth individuals (HNWIs) plan to buy overseas in the next year (see my analysis above as to why).
From their survey of HNWIs globally, New York City is the second most popular city to buy a home in the next 1-2 years, following London.
Stay calm, people. New York is where the rich want to be, and investors of all sorts will be coming here with cash purchases should there be any significant shocks to the global financial system. Even in the absence of that, New York City should price appreciate in 2023 by about 2%. That’s not a big number, but it’s a lot better than losing 25% in the stock market!
Have a great weekend, everyone!