Kyle Bass, a hedge fund manager who predicted the 2008 subprime financial crisis, just warned of investing in China. According to him, investors wouldn’t invest in the Middle Kingdom if they were aware about the problems of country’s banking system.
Bass tells investors that if they invest in Asia, they should be ready to take 30-40% losses from their Chinese investments. He says that common sense tells there will be a down cycle in this country.
Chinese stocks have already declined much in the past year. Chinese are able to save large parts of their income. Since it’s not easy for the Middle Kingdom’s citizens to invest abroad due to government restrictions, they started investing in real estate to the point of high overvaluation.
When real estate prices became too high, the next step was to invest in the Chinese stock market, which then skyrocketed. It came to the point where people without any investing experience, such as students or grandmothers, started speculating, while taking on leverage, and eventually suffering significant losses.
Since there are unresolved issues with nonperforming debt, Chinese banks, as well as the whole economy, may have to take a hit in the future. Kyle Bass isn’t the only well-known investor who has made a warning about China. George Soros is another one.
Mr. Bass is also known for some controversial actions when it comes to investing. When his hedge fund’s performance dived, he sought extra returns by shorting stocks, while going against the companies he shorted. For example, he began suing pharmaceutical companies for patent infringements while shorting their stocks.
As a General Motors shareholder, he defended the company from lawsuits due to deaths and injuries from faulty airbags and steering systems in GM’s cars. He even blamed the victims for not being careful enough or being drunk. This has brought him lots of bad publicity. For more reading, we recommend Useful Stooges article Kyle Bass the Frantic Investments of a Desperate Gambler.