The chorus of anti-Chinese sentiment is becoming troubling: after virtually every major hedge fund manager has recently voiced in support of a Chinese bubble pop, with today's most recent statement by Marc Faber just the cherry on top, could Farrell's rule #9 be relevant here and with everyone expecting the endgame, one would end up not occurring? Earlier Marc Faber said in a Bloomberg TV interview that "China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst. The market is telling you that something is not quite right. The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months." Roger's sentiment comes on the heels of the latest Chinese increase in the reserve requirement (RRR) which has had a nasty effect on Asian markets overnight (and, briefly, on US futures as well). Alas, the Chinese action is not enough, as even JP Morgan admits: "PBOC’s 50bp RRR hike underlines two messages on monetary policy: (1) More tightening in China is needed; (2) Pace of action will be moderate. BI should again signal it is in no hurry to hike."
At this point it is glaringly obvious to anyone that without the Chinese liquidity and fiscal dynamo, the recovery is dead in its tracks. China, which is basically a US replicant in its monetary policy thought its currency peg, is critical to reinforce the actions of Bernanke. Which is why the fact that if even the slowest of momos, BlackRock, see the imminent meltdown and have decided to stay away, is troubling. Per Bloomberg:
BlackRock Inc. is among money managers reducing their holdings on Chinese stocks on expectations that economic growth has peaked. The BlackRock Emerging Markets Fund has widened its “underweight” position for China versus the MSCI Emerging Markets Index to about 7.5 percent from 4.6 percent at the end of March, the fund’s London-based co-manager Dan Tubbs said.
The true contrarian play here would be that China will not moderate voluntarily until it is really too late and the events in the country are no longer under the control of the PBoC. Faber, Chanos, Hendry - they all appear to assume rationality will eventually prevail. We are skeptical.
In the meantime, below is the groupthink chart of how JPM sees future rates and FX rates for Asia.