Bloomberg News

China Housing Market in ‘Mother of All Bubbles,’ GMO Says

February 17, 2012

(Adds Peter Chiappinelli’s investment strategy in the second paragraph.)

Feb. 16 (Bloomberg) -- China’s housing market is experiencing the “mother” of all bubbles, and a property slump will hurt everything from Australian mining firms to Europe’s luxury-goods makers, according to Grantham, Mayo, Van Otterloo & Co.

“We are very concerned” about China’s economy, Peter Chiappinelli, a portfolio strategist for asset allocation at Boston-based GMO, said at the Bloomberg Link Portfolio Manager Mash-Up Conference in New York. “All bubbles pop eventually.”

GMO, which oversees $97 billion in assets, is betting that shares of Chinese real-estate developers, construction companies and cement producers will decline, said Chiappinelli. GMO is also betting against Australian mining companies, German carmaker Bayerische Motoren Werke AG and British luxury handbag maker Burberry Group Plc. The companies have been benefiting from China’s housing boom and expanding middle class over the past years and are “very exposed to” a China slowdown, he said.

An index tracking housing developers in the Shanghai stock exchange fell 18 percent last year as the government limited mortgages and restricted home purchases to rein in home prices that increased in the previous two years. The cooling market helped slow gross domestic product growth in 2011 to 9.2 percent, matching the smallest expansion since 2002.

It is “very difficult” to have an optimistic view on China because the housing price drop will afflict banks and the European debt crisis undermines its exports, said Lisa Emsbo- Mattingly, the director of research in the global asset allocation division of Fidelity Asset Management.

‘Very Concerned’

“We are very concerned about China,” she said at the conference. Europe is a “negative drag” on the country, she said.

China’s exports and imports fell for the first time in two years in January and lending grew less than estimated, a government report showed on Feb. 10.

The International Monetary Fund said in a Feb. 6 report that China’s economic expansion may be cut almost in half from its 8.2 percent estimate this year if Europe’s debt crisis worsens, a scenario that would warrant “significant” fiscal stimulus from the government.

--Editors: Marie-France Han, Brendan Walsh

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net;

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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