China Economy: Is there a buying opportunity now…
A Nervous Time for China Investors?
About: (China ADR Index, Jim Chanos, HSBC Global Research, Gary Evans, China’s economy, China investing, China economy, China Stock Digest, Chinese economy, China stock market)
New buying opportunities may be popping up as the investment community suffers from a prolonged attack of the jitters. The China ADR Index continues to slide because of uncertainty caused by a number of trends, all of them interacting in unexpected ways.
The number one concern for investors appears to be worry over Beijing’s efforts to rein in financial stimulus and protect the economy from overheating. Recent moves to raise banking reserve ratios and put the brakes on a torrent of lending in January sparked fears that the boom in China’s economy may be ending.
Professional shorts and doomsayers have added fuel to the fire. Jim Chanos’ now famous remark that “China is like Dubai times one thousand” has been echoed through the world’s investment media like the shot heard around the world. This week Dr. Doom himself, the legendary Marc Faber, chimed in with a warning that uncertainty in China could lead to a 20% fallback among U.S. equities.
There’s an expression among professional investors called “talking your book.” That means talking up investments you hold, or perhaps in this case talking down investments that you are shorting. Chanos and Faber can take credit for predicting some investment bubbles in the past, but neither has a record of previous insights into the unique world of China investing or the Chinese economy. How seriously should we take them?
The evidence shows that many investors have been spooked by Chanos, by China’s clampdown on stimulus as well as other unsettling events including the Google dispute with China. U.S. arms sales to Taiwan and President Obama’s recent meeting with the Dali Lama have also caused consternation in Beijing and added to the sense of unease about investing in China.
The evidence goes beyond the slide in the ADR Index. A new report from Bloomberg indicates that options traders are betting on further declines in Chinese shares.
Of course, a market downturn can create buying opportunities, especially if that downturn is disconnected from financial realities. That’s exactly where we stand now according to Gary Evans of HSBC. The Hong Kong-based strategist with HSBC Global Research sees a buying opportunity, telling The Street.com, “the [Chinese] market looked attractive on several valuation gauges, noting that most company’s earnings were forecast to grown by one-fifth on a per-share basis this year.”
This is a view that accurately encompasses the burgeoning economic climate in China, where the nation’s GDP is still increasing at a double-digit rate. There may indeed be overheating in the real estate sector but a pullback there would not have a catastrophic effect on the economy, as Jim Chanos appears to be predicting. China’s banks are much, much healthier than U.S. banks were before the United States’ own real estate implosion. Equity rules governing homeowners are much tougher for the Chinese than the “free money” binge that American lenders once indulged in.
Standing behind the banks in China is the central government, which holds a hoard of cash the likes of which have never been seen before. With $2.4 trillion in reserves, Beijing would certainly have the ammunition and the determination to deal with any sector of the economy in trouble.
In assessing the relative health of the U.S. and Chinese economies, it’s worth asking this question. What do the U.S. and Chinese stimulus packages have in common?
The answer. They’re both paid for with Chinese money.
