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China looks set to crash
Tue, 4 May Pre-Open

Noted investor Marc Faber, author of the Gloom, Boom & Doom report, is wary of investing in China. He believes that China's economy will slow and possibly crash within a year. What will fuel it are the declines in stockmarkets and commodity prices which would highlight that the nation's property bubble is set to burst. Readers would do well to recall that the Chinese economy was impacted by the global financial crisis due to slowdown in exports.

A nation which relies heavily on exports to bolster its GDP, recession in the developed world meant that demand and consumption waned. Suddenly, there was not much of a market for Chinese goods. This slowed down Chinese GDP growth although it was way above what the rich world was recording at the time.

As green shoots began to spring up and stockmarkets across the world zoomed, China also benefitted. What followed thereafter is a surge in stockmarkets and bank lending. This in turn fuelled property prices which began to run way ahead of fundamentals. The Chinese central bank did step in to curb excess liquidity but that does not seem to have done much. As reported on Bloomberg, the Shanghai Composite has slumped 12% this year and has been Asia's worst performer.

China is in peril because the economy has been latching on to property development for driving growth. As per reports, as much as 60% of the country's gross domestic product relies on construction. What is more, with policymakers in China trying to arrest the surge in property prices, Faber is of the view that investors would then be goaded to turn to Chinese stockmarkets. This too at a time when stocks in that nation appear fully priced.

Assuming that China does crash, it would be naïve to assume that the same would not have an impact on the Indian stockmarkets. Surely, there could be a knee jerk reaction which would then provide investors with a perfect opportunity to pick up some good quality stocks. India, at the end of the day, is not reliant on exports the way China is and the domestic growth story in the former still has a lot of steam left. Thus, a loss in Chinese stockmarkets could very well turn out to be a gain for the bourses in India.

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Mar 19, 2018 (Close)