Michael Shaoul: We Are Shorting Chinese H Shares; China's Property Slide Is Just Beginning

Summary: In this episode of China Money Podcast, guest Michael Shaoul discusses his view on the Chinese economy. He is bearish and expects the current economic slowdown to last until the end of this year, in stark contrast to the consensus view that the economy will pick up speed during the second half of 2012. Here are his main points: - The major concern of the Chinese economy is the real estate sector. The softness we have seen in this sector is only the beginning of a broader and deeper correction that will affect peripheral industries such as materials and commodities more harshly than people expect. - China’s real estate cycle will be different from the US housing cycle. Though China’s property sector is less leveraged, the losses are still real on behalf of property owners. - Even after the Chinese policymakers loosen monetary policy sometime during this quarter, the stimulus effect will not translate into economic improvements immediately. The economic deterioration will continue well into the end of this year, if not longer. - The current transition will be difficult for the Chinese economy and for investors who are exposed to the Chinese “growth” story (as well as other emerging markets such as Brazil and Hong Kong). - China’s economy is 25 to 35 percent of the U.S. economy, but China has 140 percent of the money (M2) that the U.S. has. The massive amount of liquidity will take time to unwind. - We only have short exposures to some H shares in Hong Kong. It is difficult to find good investments in China right now as it was difficult to find good investments in the U.S. in 2007. Investors will have to hold through a difficult period and endure losses. Our Guest Today: Michael Shaoul is chairman of Marketfield Asset Management, a New York-based investment firm that oversees over $1.5 billion. The Marketfield Fund beat 97% of its peers in 2011. Mr. Shaoul also serves as chief executive officer of Oscar Gruss and Son Incorporated, a New York Stock Exchange member firm. Between 1992 and 1996, Mr. Shaoul ran Park Square Associates, a Manhattan-based real estate investment and management company.