Posted by: Frederik Balfour on September 24, 2008
At the CLSA Investor Forum here in Hong Kong there haven’t been a lot of backslapping and hi-fives, which isn’t surprising considering the headlines these days. But as one CLSA staffer said to me, the mood was pretty upbeat, considering the circumstances, probably because the attendees are still happy to have jobs. Or maybe misery loves company. Who knows, maybe they showed up to catch a private performance by Mariah Carey at the conference bash on September 25.
But after sitting through four straight media briefings on China today, I think it would take more than hearing Carey croon her new hit “I’ll be lovin’ U Long Time” to lift the spirits of investors in Chinese stocks. Fraser Howie, a CLSA managing director who introduced himself as “a notorious bear of China” said “even I’ve been impressed with how quickly the market has fallen and how confidence has evaporated.” For those of you not tethered to Bloomberg machines, the Shanghai Stock Index is down about 58% this year.
The litany of woes continued. Asian bank research head Daniel Tabbush warned that non performing loans at Chinese banks may be rising 50%. Consumer analyst Paul McKenzie said the impact of wealth destruction from declining stock and property markets was being felt by high end Chinese retailers and spoke of “overriding investor pessimism about the overall direction of the economy slowing materially.” He cited massive factory closures in Guangdong province where economic growth has imploded. That’s important considering Guangdong has been a major engine of growth since China first liberalized its economy in the late 1970s.
Henry Ho, head of China and Hong Kong research said the bottom for Chinese equities hasn’t been found yet. His advice to potential investors: stay on the sidelines. Sound advice.
So what’s the bottom line? Look for the Chinese government to start goosing the economy. CLSA’s China macro economist Andy Rothman says that may have already begun, albeit quietly, through accelerating fixed asset investment in infrastructure in China’s less developed provinces. He also predicts the government will take measures to prop up the sagging property market, which would probably involve reversing policies implemented to prevent a property bubble 12 months ago. “They don’t want price growth to move into negative territory. That could be a problem for the banks, cause land sales taxes to fall for local governments and would be a problem for migrant workers on construction jobs,” he said.