Stephen van Eyk, reveals that he stopped investing in China six years ago, foreseeing that China’s economy would imminently collapse.
van Eyk, who needs no introduction, said China’s economy would bust, “it could be next month, or could be some time over the next 12 months… you don’t know as their not transparent…but why would you take a risk”.
You could get exchange traded bear funds to offset some of that risk though, he added. But when it came to his own portfolio, he exited all China exposures six years ago.
The research tycoon said the huge problem was that people were “playing the long game and waiting till the rest of the world picked up, and then China’s exports would pick up” and China’s companies would improve, “but the rest of the world ain’t coming good”.
China had the power to drastically turn things around, van Eyk stressed.
If the Chinese government dropped their exchange rate “by 10 per cent”, their exports would be cheaper, “then China could compete with the US”, he said.
China’s market share and revenue would then increase, van Eyk said.
But, at the moment, we all know there were problems in China, the hard part was “determining the magnitude of it and how long it can go on for”, he said.
His research found that the top six banks in China held more trusts than they did loans and that was one of his warning bells.
“I’m thinking holy hell, they could have 50 per cent bad loans”, he said.
Those trusts could be “bad debts” as Chinese companies usually take their bad debts off their balance sheets by putting them in trusts, he said.
“You don’t know what percentage of those trusts are bad loans, but it’s making you think. And that’s the problem with China, it’s not exactly transparent…you are always guessing, he said.
They also wouldn’t become a consumer driven economy, until “much later than everyone thought”.
But not until “they have all the things that we take for granted like healthcare, social security if they lose their jobs, superannuation, all the things that human beings want”, he said.
Compounded on that was the obvious things that everyone knew he said, “you know that China’s bad loans are rising, you know that the People’s bank of China keeps supplying credits to banks, so the banks can keep on rolling over these loans as the companies can’t pay it”.
