According to GMO, one of the largest asset management firms in the world with $100B in AUM, China’s housing market is experiencing the “mother of all bubbles”.
“We are very concerned about China’s economy”, said Peter Chiappinelli to Bloomberg. “All bubbles pop eventually.”
Who are they shorting?
GMO is betting that shares of Chinese real-estate developers, construction companies and cement producers will decline. GMO is also betting against Australian mining companies, German carmaker BMW and British luxury handbag maker Burberry Group Plc. The companies have been benefiting from China’s housing boom and expanding middle class over the past years and are “very exposed to” a China slowdown, he said.
“We’ve applied a more surgical approach to how we wanted to construct a short. We call it a three tier short. Three themes all tied to infrastructure and real estate.
Tier 1 would be those names that are directly tied to China real estate, China development, China banks, China cement manufacturers, with an obvious link to China real estate.
Tier 2 we would describe perhaps as less obvious, think Australian mining.
Tier 3 even less obvious back to your global comment, everything is tied together. You can play a China short through European luxury goods, through BMW, through Burberry, those kinds of names, vast majority of incremental growth is coming from mainland China. And we think they are very very exposed right now to a potentially dangerous situation. So it’s more of a China theme that goes well beyond China’s borders.”
China’s exports and imports fell for the first time in two years in January and lending grew less than estimated, a government report showed on Feb. 10.