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.

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.”

Editor’snote:ThisisanextractfromTheGoverningPrinciplesofAncientChina,basedon360passages andWritingsonImportantGoverningPrinciples.CommissionedbyEmperorTangTaizongofthe TangDynastyintheseventhcentury,thebookcontainsadvice,methodsandhistoricalnotesonthe successesandfailuresoftheimperialgovernmentsofChina.Todayitcontinuestoberelevantasa sourceofinspirationforself-improvement,familymanagementandinterpersonalrelations.