Tuesday, February 7, 2012

Farrell: Don't Follow Jim Rogers, Bet With Chanos & Short China - Barron's (blog)

Commodities investor Jim Rogers famously bet against Fannie Mae, banks and home builders just before the 2008 financial crisis. He’s authored a book titled “Bull in China, Investing Profitably in the World’s Greatest Market.” And, notes MarketWatch’s Paul Farrell, he moved to Asia.

“But should you follow his lead? Forget America? Invest in China, the ‘World’s Greatest Market?” he asks in today’s column. His response: No way. In fact, Farrell advises shorting China. He writes:

“China’s hot economy will crash and burn in the coming years. It is the ‘World’s Greatest Market’ today … They will self-destruct. Why? Simple math, psychology, history: Bubbles always pop.”

While China’s economy looks fabulous today, gambling with Rogers “is a bad bet” due to the increased inter-connected nature of the global economy, the column notes. Also, the piece refers to views by financial historian Niall Ferguson, who warns that China is “gloating on our misfortunes.” He cautions that China’s “headed for a collapse of its own” as a raft of political, social and economic pressures figure to undermine the country’s growth.

A better strategy in such a scenario is the path charted by Jim Chanos, says Farrell. The hedge fund manager has been warning investors to ignore the China “hype,” telling BusinessWeek that investors should short China and its bubble is collapsing. Chanos believes the country has too heavy of a government footprint in economic matters and practices a form of crony capitalism, among other things. He also remains critical of China for its massive municipal debt, overbuilding of luxury condos and poor accounting practices.

For traders, such views would seem a bit problematic at the moment: The iShares FTSE China 25 ETF (FXI), the most popular fund of its kind, was most recently trading higher Tuesday. In the past month, it’s up 10% and over the past five years its shares have gained slightly more than 3% on an average annualized basis. At the same time, the SPDR S&P 500 (SPY) has risen shy of 5% in the past 30 sessions and less than 0.5% over the last five years.

View the original article here

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