notes of 'another leg to the Chinese story laid bare!!!'

Andrew Lee from UBS wrote an excellent article last month and made a number of key points explaining why he thinks China's growth story is fundamentally unsustainable.And here is some of my notes.
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1.China are encountering a number of vital resource depletions right now. Fuel, oil and Top soil are all critical concerns to the stability of Chinese economy.

3rd presidential cycle and emerging market equity

Normally, the first half of pre-election years is good for equities. The logic is this, in the pre-election year, government tend to expand public credit because this is when the majority of economic policies are put into effect. As long as government credit expansion succeeds private credit contraction, asset price appreciates.

However, chances are these governments driven policies (cheap credit) causing economy overheating and pushing interest rate higher. Had private credit contraction succeeded government credit expansion, market crashes.

When we entering the second half of year 3, given today’s equity markets’ highly correlation, high volatility and downside risks for emerging markets are anticipated.

Hedge fund manager Jeremy Grantham wrote in his Q1 2011 letter:
To make money in emerging markets from this point, animal spirits have to stay strong and not much can go wrong. This is possibly the last chapter in a 12-year love affair…from now on, we must be more careful.

Shanghai Composite Presidential Cycle

As far as I’m concerned, if we encounter say any type of weather disruption which triggers soaring food prices, or 1970s style oil embargo in Arab world, emerging market would be brought down to stagnation immediately. With today’s euphoria about emerging markets, this one tail risk should be bet against.

Lessons from the Asian Financial Crisis

http://www.wright.edu/~tdung/asiancrisis-hill.htm

Charles W.L.Hill

University of Washington

(China parallel highlights )
 

Asian Contagion

Between June 1997 and January 1998 a financial crisis swept like a brush fire through the "tiger economies" of SE Asian. Over the previous decade the SE Asian states of Thailand, Malaysia, Singapore, Indonesia, Hong Kong, and South Korea, had registered some of the most impressive economic growth rates in the world. Their economies had expanded by 6% to 9% per annum compounded, as measured by Gross Domestic Product. This Asian miracle, however, appeared to come to an abrupt end in late 1997 when in one country after another, local stock markets and currency markets imploded. When the dust started to settle in January 1998 the stock markets in many of these states had lost over 70% of their value, their currencies had depreciated against the US dollar by a similar amount, and the once proud leaders of these nations had been forced to go cap in hand to the International Monetary Fund (IMF) to beg for a massive financial assistance. This section explains why this happen, and explores the possible consequences, both for the world economy, and for international businesses?

Jim Chanos:Investing Behind the Great Wall

Hedge fund pro and short seller Jim Chanos believes that China’s overbuilding and overdependence on new real estate, when the demand isn’t there, will cause the nation to eventually “hit a wall.”
CNBC: “The problem is that consumption as a percentage of Chinese economy has declined in the last 10 years, from 40 to 35%. It’s all real estate,” Chanos said.
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