Hedge fund manager James Chanos, who has been a long-time skeptic on the Chinese growth story, is sticking with his gloomy view of ratings agencies Moody’s Corp (MCO.N) and Standard and Poor’s, saying their rosy outlook on China’s debt only bolsters his bearish bet.
The famed short-seller said he’s puzzled by the readiness of S&P, a division of McGraw-Hill Companies Inc (MHP.N), to downgrade the sovereign debt of countries like the United States and much of Europe while continuing to give a nod of approval to China and its banks.
“The rating agencies are getting this one really wrong,” Chanos, the founder and president of hedge fund Kynikos Associates, told the Reuters 2012 Investment Outlook Summit.
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S&P earlier on Tuesday affirmed its long-term rating on China’s sovereign debt at AA-minus, just one day after it threatened to downgrade 15 countries in the troubled euro zone, including that of Germany, Europe’s biggest economy.
Moody’s rates China at Aa3, with a positive outlook.
For at least a year now, Kynikos, with $6 billion under management, has been shorting shares of Moody’s Investor Services and S&P parent McGraw-Hill.
He is shorting mining companies and construction companies that ship raw materials to China and is also betting against shares of some Chinese banks.
“It is already happening,” Chanos said, citing what he said is a drop in new apartment sales across the country of about 40 percent year-on-year. “Everybody is admitting transaction volumes have plummeted. This is what we saw in places like Las Vegas and Florida before the crash; transactions just stopped.”
“We are short anyone involved in the China real estate boom,” he added.
Recently, Chanos has been focused on China’s banks, which he says have made and continue to make billions in risky loans without sufficient capital.
Kynikos is short shares of the Agricultural Bank of China (601288.SS), the country’s largest county lender.
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H/T to Value Investing World