Is China too risky? Two hedge fund managers weigh in
Friday, October 31, 2014 - 04:13
Prominent investors Jim Chanos and Mark Yusko have very different views on China. Chanos thinks the country is heading for a credit crunch, while Yusko sees a lot of return potential in online retailer Alibaba
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This weekly spoke with two very prominent investors about investing in China and we heard two very different view points. Famed short solid tips and us has been short China for years and now he sees it shipped in what's happening there. What we've been saying very recently is that if that does appear obvious silence credit crunch that that is unfolding. The biggest indicator would be this sort of dramatic drop in new credit extended. To put it in perspective. Last handful of years new credit there's a so called total social financing. Extended every year was about 30% of GDP to protect. And in this most recent period September. Vs a year ago September it's dropped to less than half that about fourteen point 6% growth. So there's been a dramatic drop in new credit outstanding in China. Chase Ellis is bearish on a number of different sectors we continue to to be. Involved in a wide variety of of mostly credit. Driven and realistic related shorts and trying to. Property developers coal mining companies. Cement companies. A number of of people involved in the so called shuttle ending. Market is in the of course the first derivatives. In the commodity plays globally. It just doesn't always make sure bets in the past for instance he was bullish on casinos in Macau. The leading stocks of the casino companies would go higher but now he's changed his mind it is cautious casinos as well. The problem now news is that business has turned down an echo needs down the last 45 months. And in the end it's September October probably meaningfully so. On top of that for the first time. You begin to see increasing capacity so we're going to see. Large amounts of new rooms in tables c'mon in Macau in 2015. And sixteen and seventeen just as the businesses turning down. And having settled that the earnings estimates. For these companies are still rather elevated but yet they're being revised downward and so valuations. I. Estimates are coming down new capacities can be on profitability is going to be impacted and all of that works out pretty well if you're shorts. Taking a very different you investor mark you ESCO runs Morgan Creek capital management. He is bullish on five industries in China retail consumer Internet health care and alternative energy. Just to give a little perspective this is not promising future but it last year for example the index or the TF is down about 10%. If you bought a basket health care companies made 80%. About a basket Internet companies and earn 20%. Now those are really high onetime returns master's degree for the markets. But what. One thing for perspective is there's a recent study by CL SA currently in jail written in Asia. They talked about the Chinese Internet market they think will grow 26%. Com pounded the next decade. Now you say gonna have a bit cost there but I mean 20% returns. And what of his favorite stocks is right here at home. The significant stake in Alibaba the Chinese e-commerce company that went public in the US a few months ago. Looking into next year we think they're gonna have big here and in earnings and profits so primed to have a little bit more effort and you actually see this company potentially in three years becoming the most valuable. Yeah you know it's to call it made about. You know a year ago whereas me with a guy in China we're talking about this and and we said that you know this company really has the potential to become the most valuable company in the world given their breath and an expansive Nissen and the global reach that they have. Alibaba briefly crossed the 100 dollar mark this week giving it a current valuation of over 250 billion dollars. Meantime China's benchmark CSI 300 index rebounded from losses and 2013. This up more than 7% this year I'm Rhonda schaffler porn gusting to outline.
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