Subject: Smart Money is Fleeing China - Don't Be Left Holding the Bag
Reply-To: Do-Not-Reply@e.moneyandmarkets.com
It’s been nearly two decades now, but some of you may still
remember the “Asian contagion” of 1997 that wreaked havoc in the fastest
growing region of the world and left some economies like Thailand
permanently hobbled by the exit of hot money. Indeed the words “Thai
baht” became shorthand for the dangers of investing in emerging markets
and took out Victor Niederhoffer one of the most legendary hedge fund
managers of all time permanently out of business.
So why concern ourselves with events that are nearly twenty years old? Because market history has a nasty habit of repeating itself and this time the damage may be far, far worse.
This year started with rumblings in the Chinese equity market caused by weakening of the Chinese yuan. But despite a couple of days of panic selling, few investors truly appreciate the danger that lies ahead. According to JPMorgan economist Nikolaos Panigirtzoglou, a stunning $930 billion of capital fled China over the past six quarters and his data doesn’t even account for the end of last year. That means that a cool one trillion dollars have evaporated from Chinese balance sheets in basically just one year.
While the conventional wisdom worried about the “strength of the yuan” and the fact that China was manipulating its currency lower, we warned as early as the middle of 2014, that the country was a paper tiger, noting that if the going was so good at home why were the Chinese buying up all the real estate in New York and Vancouver?
Kathy Lien
Boris Schlossberg
Weiss Research
Reply-To: Do-Not-Reply@e.moneyandmarkets.com
Dear Subscriber,
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So why concern ourselves with events that are nearly twenty years old? Because market history has a nasty habit of repeating itself and this time the damage may be far, far worse.
This year started with rumblings in the Chinese equity market caused by weakening of the Chinese yuan. But despite a couple of days of panic selling, few investors truly appreciate the danger that lies ahead. According to JPMorgan economist Nikolaos Panigirtzoglou, a stunning $930 billion of capital fled China over the past six quarters and his data doesn’t even account for the end of last year. That means that a cool one trillion dollars have evaporated from Chinese balance sheets in basically just one year.
Smart money is fleeing
China at unprecedented rate as some of the wealthiest Chinese
businessmen continue to “disappear”. According to South China Morning
Post, “Xu Xiang, an aggressive private fund manager regarded as China’s
George Soros, was arrested last month for alleged insider trading,
while six of the top eight executives at CITIC Securities, a brokerage
house aiming to become China’s version of Goldman Sachs, are being held
for questioning over possible wrongdoing.”
As we told CNBC just a few days ago, the party is over. The
chickens are coming home to roost. The junkets to Macao, the rampant
corruption in the real estate sector, the ghost cities, the massive
bank loans to essentially bankrupt and non-competitive state owned
enterprises are all finally starting to crack up under a mountain of
unproductive and unsustainable debt.While the conventional wisdom worried about the “strength of the yuan” and the fact that China was manipulating its currency lower, we warned as early as the middle of 2014, that the country was a paper tiger, noting that if the going was so good at home why were the Chinese buying up all the real estate in New York and Vancouver?
Now investors are making
the same complacent mistake, thinking that this is “just a bump in the
road” when in fact it’s a gaping crater that is going to swallow up a
lot of naive Western capital as the situation in China goes from bad to
worse.
To help grow your wealth
from China’s decline, Boris Schlossberg and I have agreed to be
interviewed by Weiss Research’s Mike Burnick next Monday, January 25 at
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Kathy Lien
Boris Schlossberg
Weiss Research
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