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Highlights

Hedge fund: China in "greatest bubble in history"

(chinadaily.com.cn)
Updated: 2010-03-19 13:42

China's massive monetary stimulus risks triggering the burst of the "greatest bubble in history", said James Rickards, former general counsel of hedge fund Long-Term Capital Management (LTCM), at the Asset Allocation Summit Asia 2010 in Hong Kong on Mar 16, Bloomberg reported.

According to Rickards, who's now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc., the Chinese central bank's balance sheet indicates that the bank is buying dollars and selling yuan, intentionally releasing the upward pressure on renminbi. The worry is held widely that revaluation of renminbi may lead China's economy to the fate of Japan's recession in 1990s.

On the other hand, China's property market is obviously overheated, especially in the housing bubble. The government has raised banks' reserve requirements twice this year to 16.5 percent after accelerating growth of property prices at the beginning of the year.

"As I see it, it is the greatest bubble in history with the most massive misallocation of wealth," Bloomberg quoted Rickards. China "is a bubble waiting to burst."

Hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff join Rickards in warning of a potential crash in China's economy, according to Bloomberg's report.

Concerning the leveraged speculation in the stock market, allocation of resources by state-owned enterprises, balance sheet of government, Bloomberg reported, Rickards came to the conclusion that China and Russia don't deserve investment anymore, while India and Brazil can be more favorable for capital in the future as two "real economies".

But all investors are not losing confidence in China's financial system. Bob Doll, BlackRock Inc.'s chief investment officer for global equities, said stockholders will gain by the end of the year as the government takes measures to prevent the economy from overheating, Bloomberg reported.

HSBC is more optimistic from a long view. "I wouldn't be surprised if there's a gradual increase in impairments, but long term I'm confident that the structure of the banking industry is very, very sound," HSBC Holdings Plc Chief Executive Michael Geoghegan said to Bloomberg in Shanghai on Mar 17.