China shop

Finweek English Edition - - INVESTMENT -

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?

Steen Jakob­sen

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