Here's why investing in China is 'crazy, literally crazy'
REUTERS/Stringer
Back in the late 80s, the stock and futures markets in Taiwan were highly driven by mom-and-pop investors.
Property prices climbed and stock prices shot up more than 10-fold to a record high in early 1990, thanks to credit expansion and financial deregulation.
Then, the government imposed stricter credit controls to cool down the markets, sending the stock market plunging nearly 80% in September 1990.
It isn't any easier to navgiate the topsy-turvy world of Chinese markets these days, Edward Misrahi, the founder and chief investment officer of RONIT Capital, told Raoul Pal of Real Vision TV.
He said:
"The market reminds me - when we're both at Goldman in the 90s - it's a little bit of Taiwan. Retail crazy market. Crazy, I mean, literally. You probably heard of all these things that happened in the last few months regarding the futures on I don't know, eggs, all kinds of things. I mean, it's just mind boggling what happens. As a result of that, as an investor it's a tricky environment to invest when you can get caught in manias, up and down, driven by things that you have no relation to. Because no one can understand the average retail investor in China and you know what happens in China, it's like 6 million retail investors decided to buy this thing."
These retail investors seem unpeturbed by the roller coaster ride in the markets, and still have a "want-it-all" mentality. That is to say, they want high returns but without any of the risk. That isn't possible.
While there are some gloomy predictions out there, Misrahi thinks China will muddle through.
Here he is again:
"We think that countries get in trouble when there are two particular big weaknesses: a system that doesn't allow financials to unleash, which unfortunately China has a little bit of that because of the currency. We think that the more they relax capital controls, the more likely they'll have a crisis. My guess is they aren't going to relax capital controls that quickly, because they don't want to lose that ability. What they don't have, the financial sector, although their NPLs are much greater than what they report, they still have a very profitable banking system. Which means that as long as they dont have to mark to market tomorrow, they can continue to little by little clean up the system over time. We think they can muddle through."
Misrahi was a partner of Goldman Sachs in New York before he cofounded hedge fund Eton Park. He then left the firm to start RONIT Capital, a London-based firm that focuses on emerging markets.
- I spent $2,000 for 7 nights in a 179-square-foot room on one of the world's largest cruise ships. Take a look inside my cabin.
- Saudi Arabia wants China to help fund its struggling $500 billion Neom megaproject. Investors may not be too excited.
- Colon cancer rates are rising in young people. If you have two symptoms you should get a colonoscopy, a GI oncologist says.
- India's forex reserves sufficient to cover 11 months of projected imports
- ITC plans to open more hotels overseas: CMD Sanjiv Puri
- 7 Indian dishes that are extremely rich in calcium
- 10 dry fruits to avoid in summer- beat the heat just by avoiding these
- 2024 LS polls pegged as costliest ever, expenditure may touch ₹1.35 lakh crore: Expert