In yesterday’s Bloomberg Markets 50 Summit, several big names of the hedge fund industry were among the speakers, including, Jim Chanos, Mark Lasry and Bruce Richards.
The conference included panelists like the noted China bear Jim Chanos and an established China bull Jim O’Neill, former chief economist at Goldman Sachs Asset Management.
Watch Jim Chanos and Jim O’Neill on Bloomberg Markets 50 Summit here.
Chanos talks about credit and housing bubble in China
Chanos’ views on China have not changed; the somewhat better economic growth that the region has managed in the past quarter has failed to shake the hedge fund manager’s longstanding bearish thesis. Chanos said that 30 percent of China’s net credit growth is based on shadow banking, and that if the country continues on the current path there will be a major credit event in the next five years. He also drew attention to the massive housing bubble that has been growing unchecked in the country, Chanos said that China’s housing sector has now ballooned to nearly 400 percent of GDP.
As usual, Chanos did not pick any names that he is particularly bearish on and maintained that any company which has exposure to China’s mining industry will have problems. The remarkably prescient shortseller has made several astute calls in the past years and has waited them out patiently. His most recent short pick was Caterpillar Inc. (NYSE:CAT). He said the company had accounting issues while speaking in the Delivering Alpha conference in July.
Caterpillar Inc. (NYSE:CAT) downgraded its earnings outlook for the year and has said that part of the lower guidance is attributable to the company’s slower business in China. Chanos has been shorting some names in the mining and steel industry as well, like Sweden based SSAB AB (STO:SSAB-A) (STO:SSAB-B) and Fortescue Metals Group Limited (ASX:FMG).
O’Neill is bullish on the New China
While Chanos remains a firm China bear, Jim O’Neill, who is famous for coining the term ‘BRIC’, is a longtime China bull. While speaking on a panel in the Bloomberg Summit, he said that the slower growth in China has been deliberate and that the current level of GDP growth amounts to a 4 percent growth rate in the U.S.
The problem of unreliable economic data released by Chinese government still stands despite a change in regime. August brought an increase in retail sales and industrial output in China, and at the same time new credit doubled, signifying that establishing a risk-averse financial system is still not a priority of the authorities there. Meanwhile, private surveys like those from China Beige Book show that growth has decelerated in the third quarter as opposed to the official numbers.
O’Neill also said that there are major differences between Old China and New China, and added that he “could be short the Old China, [but that being said he] would be long the New China.” O’Neill explained that the new China is a more service-driven industry, whereas the old China had greater focus on mining. He also spoke about the strengthening of yuan and said that this shows the government’s commitment to changing its excessive reliance on exports to drive growth.