Chanos Undeterred by China Growth as O’Neill Bullish

September 25, 2013 Leave a comment

Chanos Undeterred by China Growth as O’Neill Bullish

China’s improving economic fundamentals are unconvincing to Jim Chanos, the founder of Kynikos Associates Ltd., who is maintaining short bets on the nation’s banks. “My caution is related to the credit-driven model,” said Chanos, who correctly bet in 2001 on the collapse of Enron Corp., on a panel moderated by Tom Keene at the Bloomberg Markets 50 Summit in New York. “If you grow new credit by 30 percent to 40 percent” of gross domestic product a year, it’s not difficult to reach the government’s growth target, he said. A Chinese manufacturing index rose to a six-month high in September, boosting Premier Li Keqiang’s odds of meeting the year’s 7.5 percent expansion goal. The economy grew 7.7 percent last year, the slowest since 1999, as loan expansion fueled concern that banks may fail.While Chanos said China will have a “credit event” in five years as the country fails to keep the same pace of loan growth, Jim O’Neill, the former chief economist at Goldman Sachs Group Inc., expects that China’s economy will double in five years to $16 trillion, about the same size of the U.S. economy currently.

China’s leadership is “deliberately” slowing the economy and is capable of putting the housing market and lending under control, O’Neill said on the panel. “They are not shy or scared about meeting the scale of some of the challenges.”

‘Slightly’ Surprised

O’Neill said he’s “slightly” surprised that policy makers have allowed the yuan to appreciate this year, which shows their commitment to moving away from China’s reliance on exports to achieve growth.

The yuan has increased 1.8 percent against the dollar this year, extending its gain since 2005 to 35 percent.

While O’Neill shares Chanos’s view that the mining industry will face difficulties, he is optimistic that a “new China” focusing on consumption will lead to investment opportunities.

Chanos says such transition will be “problematic for the credit cycle.” Even as the central government acknowledges the needs to curb credit, it is difficult to keep local authorities from boosting borrowing and investing in new projects, he said.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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