I’ve been listening and reading for the past few months about the possible bubble building up in China. Jim Chanos is one of the more notable persons that has been talking about the enormous overcapacity that is building up in China. He is short companies that are providing the materials to China with which to build. I’ve been trying to determine which companies might be good candidates to short if I were running a short hedge fund. My first instinct was to try to find any company that produces building materials or that mined minerals. Then I read this article on Bloomberg: “Palmer Seeks Biggest Global Mining IPO Since 2007.” If you want to short China, then finding a company like this seems like it would be a good vehicle.
I tend to believe that China is going to experience a downturn like we had in the U.S., but the question is when, and that could be a long time coming.
China’s economy is likely to more than double in the next 20 years. It seems like a dangerous game to try and predict the inevitable crashes along the way.
I don’t have any short positions, but if i have to take, i would go against those big mining household names (BHP Billiton etc). Possibility to positive suprises should be minimal at these valuations. That kind of hot potato what you pointed out (Resourcehouse ltd), sounds good candidate too, and would lost steam quite quickly.
Difficult to say what kind of kool-aid investors have drinked, when they bid, those big mining companies up to 10x EV/Ebitda. It remains to see, how well stimulus driven 3-6% earnings yield, can support these prices.
Just quick addition to this subject.
http://bit.ly/d6yS5b
Here is intresting article which gives clarify China´s gigantic part of world steel “demand”.
“In other words, China is not just a major player in the steel market. It IS the steel market, and you can’t not focus on China if you’re interested in global markets.”
One possible candidate is China Advanced Construction Materials (CADC). I recently came across the company, but have not done any research yet.