Andy Xie warns of China crash

[Tet]

By Wee Sui Lee

SINGAPORE (Reuters) - Morgan Stanley former star economist Andy Xie warned of an imminent stock market crash in China -- but still hopes to raise money to invest in the country.

Xie, who attracted a wide following while he was at Morgan Stanley (MS.N: Quote, Profile, Research because of his often contrarian views on China's economy and stock markets, also warned that the global boom in equities would be over by 2008 and that this would coincide with a worldwide recession.

The recession would start from the United States and spiral down into Asia where exporters would be hit, Xie, 46, told Reuters in a telephone interview.

"I think it's going to be bust very soon," Xie said, adding that a combination of excess liquidity, rising inflation and rich valuations would result in a global crash soon.

"People will be surprised. When the end comes, it's going to be pretty bad," Xie added.

Despite his ultra-bearish view on the markets, Xie told Reuters that he plans to set up an "investment club" that would be open only to people he knows. The club would invest in unlisted firms, would have total funds of $200 to $300 million and would be focused solely on China.

"I'm going to be flexible -- mainly looking at early-stage companies that appeal to domestic demand," Xie said.

"I'm looking for backers who know me, so there's a trust element involved and that would make decisions much easier," he added. "I want to be backed by business people who can provide value-add. When they see somebody, or a story, they have an instinct that that's going to work."

Unlike other private equity funds, Xie said his club would also help provide management consultancy for the companies in which it invests.

CHINESE BUBBLE

Xie -- who worked at Morgan Stanley for nine years and spent five years as an economist with the World Bank -- resigned from the U.S. investment bank after an email with disparaging comments about Singapore's economic policy was leaked to the public.

His email was written shortly after the IMF/World Bank meetings in Singapore in September.

Xie declined to elaborate on his departure, but said he was already considering resigning from the bank before then.
He added that he would not join another firm again and does not rule out heading his own fund in future. He sees himself traveling around China, dispensing economic advice.

Earlier this month, Xie warned investors of an imminent meltdown in the red-hot China stock market in an article in Hong Kong's South China Morning Post (SCMP). His comments were published a day before a global sell-off on April 19, which was caused by fears of a rate hike in China.
Xie -- who has a doctorate in economics and a master's degree in civil engineering from the Massachusetts Institute of Technology -- said China was not doing enough to limit the country's frothy stock market. The benchmark Shanghai stock index (.SSEC: Quote, Profile, Research is up about 44 percent since the start of the year and set a new life high on Monday.

China's central bank announced on Sunday that it would lift reserve requirements by a further 0.5 percentage point, the fourth reserve hike this year, but Xie said this would not stem the "humungous" excess liquidity in the market.

Xie said the Chinese government understood the importance of limiting the bubble in the market, but was reluctant to implement more forceful measures, fearing a political backlash.

"College students are putting their tuition money into the market...stroke-stricken retirees get wheeled into branches of securities firms to trade," Xie said in his SCMP article.

"People are not paying attention to anything else," Xie told Reuters.

http://www.reuters.com/article/reute...0?pageNumber=1

LMAO, so the Morgan Stanley boyz kick Xie's ass out of the club, leaving him uninvested in China and I'm supposed to believe this shithead who is trying to invest $300 million of his own money and other people's money who would dump Xie's body into the river if he's wrong, isn't trying to talk the market down so he can re-enter at a lower price? What a joke.

[Sapiens]

Re: Andy Xie warns of China crash

LMAO, so the Morgan Stanley boyz kick Xie's ass out of the club, leaving him uninvested in China and I'm supposed to believe this shithead who is trying to invest $300 million of his own money and other people's money who would dump Xie's body into the river if he's wrong, isn't trying to talk the market down so he can re-enter at a lower price? What a joke.

Tet,

LOL, a man has to eat, can't blame him for trying... Not that he is wrong though.

[bill]

Re: Andy Xie warns of China crash

Xie -- who worked at Morgan Stanley for nine years and spent five years as an economist with the World Bank -- resigned from the U.S. investment bank after an email with disparaging comments about Singapore's economic policy was leaked to the public.

For the record ,his email

Andy Xie
The purported text of his leaked e-mail:
I participated in the panels on Commodity (sic) and China-India and in some obligatory dinner parties. On Friday night the Singapore prime minister invited the speakers at the meeting that the Singapore government organised. Trichet, Larry Summers, Paul Volker (sic) Chuck Price, the finance ministers of ASEAN countries were there. No government official from China was there …guess I was there to make it look like China was represented.
The dinner was turned into an Oprah with PM Lee Hsein Long (sic) at the center. The topic was on the future of globalization. People fawned him like a prince. Of course, he is. There are two reigning princes in the world that the Davos crowd kiss up to, Jordan and Singapore. The Davos crowd are Republican on economic issues and democratic on social issues. Somehow they manage to put aside their moral misgivings and kiss up to Lee Hsein Long and Abdullah.
I tried to find out why Singapore was chosen to host the conference. Nobody knew. Some thought it was a strange choice because Singapore was so far from any action or the hot topic of China and India. Mumbai or Shanghai would have been a lot more appropriate. ASEAN has been a failure. Its GDP in nominal dollar terms has not changed for 10 years. Singapore’s per capita income has not changed either at $25,000. China’s GDP in dollar terms has tripled during the same period.
I thought the questioners were competing with each other to praise Singapore as the success story of globalisation. Actually, Singapore’s success came mainly from being the money laundering center for corrupt Indonesian businessmen and government officials. Indonesia has no money. So Singapore isn’t doing well. To sustain its economy, Singapore is building casinos to attract corrupt money from China.
These western people didn’t know what they were talking about. Aside from the nauseating pleasantries some useful information came out of it. Trichet sounded very bullish on euro-zone economy (sic). He noted that euro-zone was catching up with the US in growth rate (sic) and talked about further gain in 2007. His tone was much more bullish than our house view. As Japan is surprising on the downside, I don't see how the rise of euro-yen could be stopped.

Larry Summers and Paul Volker (sic) were very worried about the US economy. As you probably know, Alan Greenspan is talking the same way. At the CLSA conference last week, he talked like one of his critics. There is fear of a US collapse. Many Americans think that an RMB reval (sic) would save the US. This is just a dream, in my view.

Most were worried about the future of globalisation due to income inequality. As average workers in the west are not seeing wage increase (sic), they may vote against globalisation. I thought that they were understating the benefit from cheap consumer goods. However, as inflation comes back, it does diminish the benefits for western consumers.

No-one was worried about the growth outlook for China and India. The Indian Planning Minister was very bullish, talking about 9% forever.

My sense is that policymakers are relexed (sic) about the short-term economic outlook but anticipate a US collapse at some point. Americans think that RMB reval could save the US. So they would keep pressuring China."

Andy Xie
Morgan Stanley


http://www.littlespeck.com/content/e...omy-061005.htm

[Tet]

Re: Andy Xie warns of China crash

Nothing Roach doesn't say on a weekly basis, I'd be surprised if this was really the e-mail.

[bill]

Re: Andy Xie warns of China crash

Fit to Burst

2007-04-19 18:22:17 South China Morning Post

By ANDY XIE China's stock market is now a full-blown financial mania. If left unchecked, it could mushroom massively in the coming months. Its subsequent bursting may destabilise the society and complicate economic development. Government should intervene to cool the market by cracking down on market manipulation, increasing leveraging cost, and imposing tax on short-term capital gains. College students are putting their tuition money and living expenses into the market. White-collar workers trade until the market close and then begin to work for their paying job. Stroke-stricken retirees get wheeled into branches of securities firms to trade. Some even mortgage their apartments to put money into the market. From 18-year-olds to 80-year-olds, from doctors to janitors, it seems that everyone is playing the market. As making money in the stock market appears so easy, many companies are abandoning their core businesses for financial games. Businessmen who have become rich in the economic boom are putting their working capital into the market. Market valuation is getting out of control. Most stocks appear to trade above 40 times earnings. Further, earnings are exaggerated by the stock market itself. Banks make money from selling funds. Insurance companies book capital gains. Regular companies are also making big profits playing their own capital. A stock-market bubble usually gets into trouble when it trades above 60 times earnings. China's is getting close. When the bubble bursts, there are serious social consequences. College students who lose their tuition money will certainly cause social instability. Pensioners who have lost everything will add to the social welfare burden. As the bubble is a redistribution game, the losers are sure to resent the winners who usually have inside information. China is bubble-prone for two structural reasons and one cyclical. First, it is experiencing capital surplus. Its one-child policy is a major reason for the high savings rate. This factor will keep China bubble-prone for another 20 years until the baby-boomers born before the one-child policy are mostly retired. Second, China's public psychology is very buoyant due to rapid industrialisation and urbanisation that generate rapid productivity growth. The visibility of the cake expanding leads to greed and speculative fervour. Third, and cyclically, appreciation expectation for China's currency is keeping local money at home and foreign money flowing in. The hoarding of China's currency is keeping interest rate and, hence, speculation cost low. The mainland's economic development is far from over. It cannot afford to waste the energy of its best and brightest in financial speculation. The private sector is woefully underdeveloped. Despite three decades of economic boom, China does not have one world-conquering company. The service sector is yet to combine quality and scale efficiently, which is the foundation for a modern service economy. China needs her best and brightest to build the corporate sector first, and not to waste all the energy playing asset markets. China's per capita income is only US$2,000 and it is not in a position to experience prolonged stagnation. When the cake stops expanding for a few years, social instability is likely. This is why China cannot let the bubble run its own course. In the long run, there is an alternative to asset speculation. The surplus liquidity could be channelled into creating and building new companies. Because of China's size, almost anything can be scaled up to improve efficiency and create value. China could encourage money to flow into venture capital or direct investment to fund startups or expansion of small companies. In that regard, China must build up its own venture capital and direct investment funds. The foreign funds that dominate the scene at present are too faddish in their investment approach. Their piling-in becomes another factor in inflating the bubble. As the mainland economy becomes diversified, business creation opportunities become too complicated for fly-in types to understand. The country urgently needs its local investment professionals who can raise local money to fund local businesses for local demands. The first policy action is to pass laws that allow qualified financial professionals to set up funds to raise local money for direct investment. While opening alternatives to excess liquidity is a solution, it takes time to work. The government should take action now to contain the bubble as a stop-gap measure. First and foremost, the government must crack down on market manipulators who take advantage of the bullish sentiment and suck public money into worthless stocks. When the bubble bursts, these stocks can easily drop by 90 per cent. As with the property tightening, the stock market tightening should start with fraud investigations. Second, the government must stop bank loans being diverted into the market. Securities firms appear to be returning to the market with their own money again. They were mostly bankrupt a couple of years ago but bank lending kept them afloat. Even though they have made some money in this bull market, many are doing the same again by stir-frying selected stocks. Such practices benefit insiders and, when the bubble bursts, leave bad debts. Listed companies that invest their working capital should also be investigated. The government has already ruled against this practice, but the compliance is still uncertain. If a company is private and invests its own money, the government does not have to intervene. However, if companies borrow from banks in the name of funding real business activities but speculate in the stock market instead, it endangers banks. Third, the government already has a 20 per cent capital gains tax and should enforce it for short-term trading gains. Stocks that are bought and sold within a month are a case in point. The full 20 per cent should apply. If the holding period is longer than two years, the tax could be exempt. Such a policy would slow the market down, cool short-term speculation and force the market to become more long-term and value-oriented. The time for action is now. The market is in a frenzy and the bubble can mushroom quickly. The longer the government waits, the bigger the disturbance to social stability when the inevitable burst comes. Andy Xie is an independent economist.

http://english.cri.cn/2946/2007/04/19/199@218124.htm



I do like his cartoon.

[DemonD]

Re: Andy Xie warns of China crash

I can now add Andy Xie on the list of economists/analysts that I have great respect for. Someone get that man an itulip forum to call his own!