In this episode of China Money Podcast, guest and veteran investor Jim Rogers shares his bearish views on the Chinese property sector, and explains why those who argue that the RMB is approaching fair value are wrong.
Listen to the complete interview in the audio podcast, watch a shortened video version, or read an excerpt below.
Q: We are in this high-speed train from Tianjin to Beijing going at 350km per hour. Are you impressed?
A: Yes. I am. I came over today and it’s very quiet and very smooth. I couldn’t believe how wonderful it is. It’s better than an airplane.
Q: This is a perfect showcase of China’s infrastructure boom during the past few decades. How much longer can this boom go on?
A: I’ve driven across China a few times. I know there are a lot of space and a lot infrastructure needed to be done, so there will be more to come.
Q: Last time we talked, you said the Chinese property bubble will have an ugly burst. We’ve seen housing prices drop, but by small margins. Will it get much worse?
A: It’s actually been dropping a lot in some places. But, what I’m worried about is that the Chinese government is loosening interest rate and bank reserve requirement ratios too soon. If they loosen too soon, as they did once before, the bubble got much worse, and people will lose more money ultimately.
Q: You predict that the U.S. economy will go into a downturn next year and 2014. How will that affect the Chinese economy?
A: With the largest economy in the world having problems, everybody feels it. If you sell to Wal-Mart, you will feel the pressure. By the way, Europe is slowing down. So you have two of the largest economic blocks slowing down, China's (prospects) will be clouded too.
Q: As you know, many economists are calling for the Chinese economy to warm up again, if not during the second half of this year, then early next year. You don’t think it’s the case?
A: No, because I expect the U.S. and Europe to slowdown in 2013 and 2014. Sure, some parts of the Chinese economy will be fine, but most of China, especially those dealing with Europe and the U.S. will have problems.
China is spending billions of dollars to clean up its air and water, so (environmental technology and) water treatment sectors will do very well. If you are in agriculture, you will not care if America is in trouble.
Also, some parts of the Chinese economy will still have a hard landing, such as the property sector. So it’s a mixed bag.
Q: Now, let’s look at something more immediate, the Euro-zone crisis. If Greece and other countries exit the Euro-zone, how big an impact will China feel?
A: Greece leaving the Euro-zone will have no effects on China, but the knock-off effects will be felt in China. Most Chinese don’t care where Greece is. They don’t care what happens to Greece. They don’t care if Greece falls into the sea because it’s not going to affect them.
But the subsequent economic slowdown will affect China and the Chinese people.
Q: You have been a long-term bull in commodities, despite a downturn at the present. What is the best way to play the trade right now?
A: If you are very good at stock picking, you can buy stocks of commodity producers. But studies show that you will be the most better-off if you buy the commodities themselves.
If you don’t know commodities, you can buy an index or an ETF. Index and EFT investing outperform most investors 75 or 80 percent of the time, year after year. So If you know what you are doing, buy stocks and the commodities themselves. For most people, it’s best to buy an index or ETF.
Or, you can invest in countries like Canada or Australia where commodities are produced.
Q: Imagine yourself as a Chinese citizen. Stocks have been in disarray; the property market is in the middle of a correction. There aren’t many choices for good investments. Where would you put your money?
A: I would put it the same as an American citizen, in raw materials and commodities, silver or gold. Also, I would buy currencies, though that’s difficult for Chinese people.
And, I'd sell short of stocks, because I don’t think prospects for the world economy are very good.
Q: Lastly, what’s your take on the RMB? It’s appreciated against the dollar a lot. Is it approaching fair value?
A: No, no, no. The RMB will go much higher against the dollar in the next ten or twenty years. Japanese yen has gone up 600 or 700 percent against the USD over the past few decades; it’s still competitive.
Of course, there will be times when the RMB will go down. So don’t think there won’t be fluctuations. But basically, don’t sell your RMB over the next few decades.
Also, another way you could consider it is to buy the Hong Kong dollar, which is tied to the USD. Once the RMB is convertible, the HK dollar will be converted into RMB, so that’s the other way to play the trade.
About Jim Rogers:
Jim Rogers is the chairman of Rogers Holdings and a veteran international investor. He is an author with a number of best-selling books, including A Gift To My Children, Investment Biker and Adventure Capitalist. He received bachelor's degrees from Yale University and Oxford University. He currently lives in Singapore with his wife and two daughters.
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