ly, there is a general rule of thumb that states that if a country expands its private credit by more than 30% over less than 10 years it leads to a major banking crisis and recession. I have no doubt that China has decided that a small crisis now is far better than a major crisis in one or two years; a choice no-one would ever take in a world of elections.”
The issue of the Chinese credit bubble popping in 2014 has been gaining traction since early January when a Special Purpose Vehicle of the China Credit Trust Company, with about $492m in assets, being bailed out at the last minute by banking group ICBC.
Bank of America Merrill Lynch has been warning institutional clients that it expects defaults to rock the system in 2014. This should be enough to scare most ordinary investors away from the market, especially with memories of the recent emergingmarket sell-off that wiped nearly $3tr in asset value off markets in just three days. But perhaps these concerns are misplaced.
According to Yu, the Hang Seng is only trading on a forward price to earnings
multiple of 6.5 times, which compares favourably to the f ive year average of 9.6 times. Financial services group, Ping An, Sino Biopharmaceutical and Tencent Holdings are three of the stocks identified by JP Morgan for growth.
So what’s an investor to do?