Roger Nusbaum submits: I am a big believer in China as an investment destination. I have not gotten carried away with how much I have but do think it is an important theme. Part of managing a portfolio has to be seeking out the other side of your trades to either strengthen your conviction or make you realize when you are wrong.
Yesterday on European Closing Bell, analyst Diana Choyleva from Lombard Street Research came on and said that China is in for a very hard landing later this year. She says that China's rate hike is too late and that they will have to be very aggressive with rate hikes to slow down the 9% (or higher) GDP growth. She said profitability has already been destroyed by over-investment. She also sees a consumer lead slowdown in the US later this year that will domino to negatively impact China too.
She went on to say that the investment community has too much faith in the Chinese authorities to engineer a soft landing of any sort. Booms and busts are more typical for China than anything else. She sees no way out for China. She sees growth slowing to 5% which she calls a meltdown because it is so far below current growth rates. This, by extension, will be bad for all commodity prices except, perhaps, for oil.
So, is she right? I'm not sure how well I am conveying her negativity but I doubt she can be right in terms of magnitude this year, which is her time line. For the last two year the Shanghai Composite is down from 1600 to 1400. In the last twelve months it is up 40%. I don't think a good year can result in a true meltdown caused by excess returns. That is not to say it can't go down but it would be tough for a decline to be truly ruinous.
I also think that all of the catalysts moving China are still in place and likely to be in place for a while to come. None of this has to mean I am right but I have a small position, as I have all along, in case I am wrong. A 3%-5% can help a portfolio but not cause a wipe out if Ms. Choyleva turns out to be correct.