Investor Marc Faber said 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 Shanghai Composite Index has failed to regain last year’s high while industrial commodities and shares of Australian resource exporters are acting “heavy,” Faber said. The opening of the World Expo in Shanghai last week is “not a particularly good omen,” he said, citing a property bust and depression that followed the 1873 World Exhibition in Vienna.
“The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong yesterday. “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.”
An index tracking Chinese stocks traded in Hong Kong dropped 1.8 percent yesterday, the most in two weeks, after the central bank raised reserve requirements for the third time this year.
The Shanghai Composite has slumped 12 percent this year, Asia’s worst performer, as policymakers seek to rein in a lending boom that’s spurred record gains in property prices. China’s markets were shut for a holiday yesterday.
Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China.
China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s GDP relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.
The government has banned loans for third homes and raised mortgage rates and down-payment requirements for second-home purchases. Prices rose 11.7 percent across 70 cities in March from a year earlier, the most since data began in 2005.
The nation’s economy grew 11.9 percent in the first quarter, the fastest pace in almost three years. The government projects GDP growth for the year of about 8 percent.
The clampdown on property speculation may prompt investors to turn to the stock market, Faber said. Still, shares are “fully priced” and Chinese investors may instead become “big buyers” of gold, he said.
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