Former Merrill Lynch all-star analyst Richard Bernstein says China is one huge credit bubble just waiting to implode. Our recent shift out of high beta assets reflects similar thinking. From Moneynews:
Richard Bernstein, former chief investment strategist at Merrill Lynch, says China’s economy is overheating and that investors should avoid its stock market.
“China is an immense credit bubble that’s going on right now,” he tells CNBC.
“I would actually rather invest into the U.S. right now than invest in China.” Chinese bank loans jumped 30 percent in the first half of the year.
“They have massive overcapacity and their solution to that problem was to build more capacity over that,” says Bernstein, now CEO of Bernstein Capital Management.
He says that those who believe China’s economy will lead a global economic recovery are mistaken.
But Bernstein also noted that China has begun to put a lid on its capacity.
China’s State Council yesterday told authorities to “resolutely” slash overcapacity, because the economy is still in a “critical period.” So China will curb its production of steel, cement, coal, glass and power.
“It’s a timely move,” said Tomo Kinoshita, an economist at Nomura Holdings in Hong Kong, told Bloomberg.
“They are already suffering from an overcapacity, but if they don’t stop now, the problem is going to worsen.”
The decision shows the government is confident about China’s economy, Helen Qiao, an economist at Goldman Sachs, tells Bloomberg.
“The fact that policy makers decided to make the adjustment now signals they deem investment strength and growth momentum outside of these areas already strong enough to withstand this move.”
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.