Peep­ing into the world’s crys­tal ball

In­vest­ment ex­pert Jim Rogers has warned of a ‘rough patch’ for the global econ­omy in the years ahead. How­ever, he tells Duan Ting that China will be the world’s next great econ­omy.

China Daily (Canada) - - HONG KONG -

As the world con­tin­ues to be mired in eco­nomic un­cer­tainty, next year could see both “prob­lems and sur­prises”, opines world renowned in­vest­ment guru Jim Rogers.

And, for the next two to three years, the global en­vi­ron­ment too will be clouded by fur­ther anx­i­ety and un­pre­dictabil­ity, with Chi­nese en­ter­prises deal­ing with the West in for a hard time, he tells China Daily in an in­ter­view.

“I see next year as be­ing fraught with prob­lems and as­ton­ish­ment,” he says, with Ja­pan, Rus­sia, Brazil and, par­tially, the United States and Europe, star­ing at eco­nomic re­ces­sion, and they’re likely to get worse in the com­ing year.

“When things go wrong, there’ll be lots of sur­prises,” reck­ons Rogers, who moved his fam­ily to Sin­ga­pore in late 2007 “be­cause of China”, and has been jet­ting fre­quently to the Chi­nese main­land in re­cent years.

And in China, he says, it ap­pears that some in­dus­tries have al­ready been slow­ing down and some com­pa­nies are hav­ing prob­lems pay­ing off their debts. Next year, there’ll be many more strug­gling to get out of the fi­nan­cial crater.

“China, un­doubt­edly, will be the world’s next great econ­omy and the coun­try it­self has been do­ing quite well. But, along the way, like the rest of the world, China will be set back and debt-rid­den Chi­nese com­pa­nies hav­ing busi­ness with West­ern coun­tries will see things get­ting out of hand and even bankrupted in the next two to three years.

“When China starts see­ing en­ter­prises go­ing to the wall un­ex­pect­edly, peo­ple will get scared. How­ever, it’s still okay for the world to in­vest in China.”

Ac­cord­ing to Rogers, the ma­jor fun­da­men­tal change in the Chi­nese econ­omy since re­cent years has been the coun­try’s grow­ing debt prob­lems for in­di­vid­u­als, com­pa­nies and prov­inces. Pre­vi­ously, he notes, China had seen lit­tle debt for his­tor­i­cal rea­sons, and West­ern economies have in­flu­enced the Chi­nese econ­omy to the great­est ex­tent.

“Hav­ing said that, there’s noth­ing wrong with debt if you man­age it prop­erly,” he ad­vises. “If you bor­row money to build fac­to­ries, im­prove ef­fi­ciency, raise sales, make prof­its and pay off the debts, it helps you grow. But, if you don’t and get bogged down by over-ex­pand­ing, you’ll suf­fer.”

“Some sec­tors of the Chi­nese econ­omy are go­ing to get worse, but some will con­tinue to get bet­ter.”

How would you pick com­pa­nies from the val­u­a­tion point of view?

Rogers prefers those in the busi­ness of pol­lu­tion con­trol, health­care, cli­mate warm­ing, agri­cul­ture, as well as com­pa­nies that are ex­pected to play a big role in China’s strate­gic Belt and Road Ini­tia­tive to strengthen ties with economies along the old Silk Roads. “These com­pa­nies will do ex­tremely well no mat­ter what hap­pens”.

He be­lieves the Chi­nese econ­omy is al­ready chang­ing, and tech­nol­ogy in the coun­try is de­vel­op­ing rapidly to be­come an­other great driver for the econ­omy. As he had said 20 years ago, the US and Europe had led in tech­nol­ogy, but China is now pro­duc­ing an av­er­age 10 times the num­ber of en­gi­neers as the US and, in the next cou­ple of decades, China will be­come a leader in the field.

On in­vest­ment prod­ucts, Rogers says: “I’m not buy­ing eq­ui­ties and bonds any­where, but may in­vest in agri­cul­ture com­modi­ties. I own gold, but I’m not buy­ing gold and wait­ing for its price to fall to ac­quire a lot more. When the world econ­omy wors­ens, there’ll be a lot of panic.”

“I’m bullish on agri­cul­ture ev­ery­where, es­pe­cially in China, as it has been de­pressed for over 30 years glob­ally.”

Rogers has high praise for the Shang­hai-Hong Kong Stock Con­nect launched in late 2014, call­ing it “won­der­ful and great” for China, say­ing the coun­try needs to open up more and in­vig­o­rate its econ­omy and sys­tems.

He ad­mits he had bought A shares through the first stocks “through train”, but laments they have be­come rel­a­tively more ex­pen­sive.

“As China opens up fur­ther, the price spread be­tween A and H shares will be nar­rowed,” he pre­dicts.

Rogers tends to go along with China’s rich­est man — Dalian Wanda group boss Wang Jian­lin — adamant that the main­land’s prop­erty mar­ket is over­priced, with a fi­nan­cial bub­ble in the mak­ing.

“Prop­erty is not as ex­cit­ing as agri­cul­ture. If you want to buy prop­erty, go to the farm, the ru­ral ar­eas and coun­try­side. I’ll not buy prop­erty in Bei­jing, Shang­hai, Shen­zhen, Guangzhou or Hong Kong.”

On the cur­rency mar­ket, he says China has been open­ing up its cur­rency mar­ket in a very slow way and be­lieves that, in the long term, the ren­minbi will com­pete with the US dol­lar and ul­ti­mately re­place the green­back as the prime in­ter­na­tional cur­rency.

He be­lieves that, in the short term, as peo­ple get cold feet over the state of the world econ­omy, they will turn to safe haven as­sets, and the US dol­lar will climb, while many other cur­ren­cies will go down, in­clud­ing the ren­minbi. “But, the US dol­lar is not a safe haven and is ter­ri­ble.”

He in­tends to snap up more ren­minbi and sell US dol­lars when they’re over­priced by which time, hope­fully, the Chi­nese cur­rency more con­vert­ible.

The in­vest­ment guru first set foot in China in 1986, and had rid­den a mo­tor­cy­cle from Shang­hai to Pak­istan in 1988 after which he turned it into a movie. “China, at that time, had no roads, no restau­rants and no petrol, and there was noth­ing you could buy. The stock ex­change was just a lit­tle build­ing lo­cated at the end of an un­paved road with a lady be­hind a cam­era,” he re­calls.

On his third trip to China in will be 1990, still on a mo­tor­cy­cle, the coun­try had un­der­gone tremen­dous change with com­put­ers mak­ing their de­but. Sub­se­quently, he went to the Shang­hai Stock Ex­change and be­gan in­vest­ing in China. But, it wasn’t un­til 1999 that he de­cided to put his in­vest­ment dol­lars in the coun­try se­ri­ously and up to the hilt.

“I think I’ve seen China more than most Chi­nese have.”

Con­tact the writer at tingduan@chi­nadai­lyhk. com

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