Tags: Chanos | China | roach | motel

Chanos: China Is a Roach Motel, Don’t Invest There

Thursday, 20 Sep 2012 10:20 AM

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Investors holding Chinese equities should sell now, and those considering entering the Asian giant’s stock markets hoping recovery will bring up share prices should stay away, said Jim Chanos, a hedge fund manager at Kynikos Associates.

The Chinese economy is deteriorating, and Beijing might take steps to make it appear otherwise via monetary policy measures like cutting interest rates or reserve requirements, but those who are caught in equities markets wishing to leave will find no buyers.

“It’s destined to suck Western capital into the country and have it never go out,” Chanos told CNBC.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

“You’re almost in a classic emerging market roach motel, except it’s a really big one in that it’s very difficult to earn adequate returns for capital and get your capital back as a Western investor.”

Manufacturing in China remains weak, a private-sector survey of factory managers found.

The HSBC Flash China manufacturing purchasing managers’ index rose to 47.8 in September from 47.6 in August, though a figure below 50 denotes contraction.

“Manufacturing activities remain lackluster, thanks to weak new business flows and a longer than expected destocking process,” Hongbin Qu, chief economist for China at HSBC, said in a statement accompanying the survey.

China has loosened monetary policy in the recent past, namely byt cutting bank reserve requirements and other benchmark lending rates.

And further easing could follow.

“This is adding more pressure to the labor market and has prompted Beijing to step up easing over the past weeks. The recent easing measures should be working to lead to a modest improvement from Q4 onwards.”

China’s gross domestic product grew 7.6 percent in the second quarter, which represents a much slower clip when compared to the recent past.

However, China’s August trade surplus swelled to $26.7 billion as imports fell, which reflects softening internal demand, something Beijing has wanted to bolster for years.

“China’s growth is slowing pretty quickly. That’s stated [gross domestic product] — you’re never going to see negative GDP from China year-over-year, I don’t think, not under this regime,” Chanos said.

“But look at corporate profits, look what’s happening on the ground. Corporate profits are imploding over there,” Chanos added.

“Take a look at the Chinese stock market. It’s gone nowhere despite having one of the highest rates of growth of any emerging market, any market,” he said.

“GDP growth has been 9, 10 percent for 10 years and you’ve made no money in the Chinese stock market.”

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

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