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China Stock Market Bubble Won't Yet Burst
China's booming equities market, the key barometer of the health of the world's fastest-growing major economy, is an "incipient bubble" but can't be characterized as one waiting to burst just yet, renowned global investor Jim Rogers said Wednesday.
China's booming equities market, the key barometer of the health of the world's fastest-growing major economy, is an "incipient bubble" but can't be characterized as one waiting to burst just yet, renowned global investor Jim Rogers said Wednesday.
| 27 June 2007 | |
| SINGAPORE (Dow Jones) -- China's booming equities market, the key barometer of the health of the world's fastest-growing major economy, is an "incipient bubble" but can't be characterized as one waiting to burst just yet, renowned global investor Jim Rogers said Wednesday. The Chinese government, however, will need to do more to cool the domestic economy, amid risks of a global fallout in the event of a hard landing. "If (the market) doubles, it'll be a full-fledged bubble and that's when I'm going to pull out," Rogers said of the Shanghai and Shenzhen stock markets. "And I don't want to do that - I want to hold on to my Chinese shares all my life," the billionaire investor told Dow Jones Newswires in an interview. Rogers, a longtime bull on China and best known for his decades of successful bets on global commodities, said Beijing is doing what's needed so far but will need to keep monitoring. "There are plenty of things they can do. They could raise interest rates and make their currency convertible so you could arbitrage. And they could tax capital gains," he said. He noted there is excess liquidity globally, but described China as a "closed circuit" given that foreign investors don't have full access to it. As a result, domestic investors are feeling "trapped" and are instead pouring money into shares and property - feeding the bubble further. |
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| Little Danger Of Global Meltdown | |
| Rogers, who first turned his attention to China around the time of his first visit there in 1984, however downplayed the risks of a widely feared global meltdown, should the Chinese economy tumble. Investors were spooked when a near-9% drop in the Shanghai Stock Exchange index in February triggered a wave of selling around the world. He suggested China's stock markets could come off significantly, using a ballpark figure of 70%, but the country's economy could still grow "3%" because it has broader-based fundamentals. In China and elsewhere, "I'm bullish on agriculture (commodities), the renminbi, the yen. And I won't sell U.S. dollars right now," Rogers said. He noted in particular that the Japanese currency may have plenty of upside given the potential unwinding of so-called yen carry-trades. Further, he's also positive on the Canadian dollar but not the Swiss franc, and in terms of stocks, favors "airlines over stockbrokers." |
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| US Most Vulnerable | |
| Rogers, 65, cofounded with celebrity investor George Soros, the Quantum Fund in 1970, and created the Rogers International Commodities Index in 1998. Increasingly, he sees the U.S. economy as vulnerable and Europe and Asia "less so." "America is probably already in recession," he said of the underperforming automobile and housing sectors, noting how the latter has now led to problems in the financial services sector. He said central banks, including the U.S. Federal Reserve, aren't doing all that's necessary to contain excess liquidity, and that some policies are unsustainable. "(Fed chief Ben) Bernanke is printing more and more money. If central banks continue on this path, there would be the demise of some of them," he said. His remarks came just days before July 2, the anniversary of the steep devaluation of the Thai baht that triggered the East Asian economic crisis 10 years ago. |
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| Buy Oil, Commodities | |
| Amid this uncertain outlook, investors could fall back on commodities, including energy directly rather than through equities, Rogers said. He noted how commodities have historically showed a "supply-demand imbalance" that offers an opportunity: if stock prices collapsed, any dip in commodities prices is a chance to buy. Meantime, while "there's been no more 'elephant' discoveries for 40 years," there's little risk of running out of oil just yet. Rather, the world is likely only running out of "excessive oil, known oil," and doesn't necessarily mean reserves are about to be depleted, he said. Rogers, who will deliver a lunchtime presentation in Singapore next week to a group of equities investors, also touched on geopolitics. The U.S., as the world's only superpower, hasn't addressed the issues of global security nearly six years since the Sept. 11 terrorist attacks, he said. "America's making a terrible mistake right now," he said of U.S. engagement in Iraq and its role in the Middle East, suggesting the situation could worsen later this year, toward the presidential elections. Problems, including mounting tensions between the West and a nuclear-ambitious Iran, are likely to persist beyond the end of President George W. Bush's second and final term in office that ends in January. "If war breaks out, buy commodities," he said. |
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