European Hedge Funds Bet on China Downturn

“European hedge fund managers are betting that China’s once red hot economic growth will cool dramatically in 2012, hitting companies, economies and commodity prices that have been fuelled by the world’s second largest economy in recent years,” writes Reuters. “Managers are taking bets ranging from short positions on equity markets or the currency to buying credit protection on companies that export to China,” while “others are shorting natural resources stocks in other countries that rely on Chinese demand.”

“China needs a healthy U.S. … consumer and it’s not getting it right now,” explains Pedro de Noronha, managing partner of hedge fund Noster Capital. “Corporate governance and the rule of law is very different from the West,” he said. “(And) there’s a huge bad loans issue in banks. The real estate market is probably in the biggest bubble in the world we have right now.” Jim Chanos on china map

China’s economy has enjoyed double digit growth every year from 2003 to 2007, but it is showing “signs of cooling of late, as global demand slackens amidst slowing growth in major economies and Europe’s deepening debt crisis.” Its GDP growth which is to be published today, is “forecast to have slipped to an annualised 8.7 percent in the three months to December, raising the possibility the Chinese government may unveil new policy steps to avert a hard economic landing.”

Some hedge funds are even more bearish on the Chinese economy. “I think China will slow down,” said Victor Pina, chief investment officer at Javelin Capital. “China has no alternative to what it is doing, which is putting the brakes on credit expansion. If China slows down to 7 percent, that will be a dramatic slowdown for most people. The 8 percent contemplated by the bear strategies, that’s the upper boundary.”

Both Jim Chanos and Marc Faber are short China. “China’s economy consists of many areas, I think some of these areas may shrink.” Marc Faber said in an interview, “I think China’s growth will slow down or even become stagnant.”

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