Asian stocks will likely beat the Standard & Poor’s 500 index over the next year and China will need to allow the yuan to appreciate as much as 8 percent to avoid further inflation, investor Barton Biggs said.
“I’m a big bull on China,” Biggs, who runs New York-based hedge fund Traxis Partners LP, said at the Bloomberg China Investment Strategies conference in New York today. “The S&P is going to beat Asia for the next three or four months, but over the next year Asia is going to be a tiger.”
Biggs, who recommended buying U.S. stocks when the S&P 500 Index started rallying in 2009, said last month global stocks may rise between 10 percent and 20 percent depending on the pace of economic recovery. The yuan advanced 3.7 percent since the government relaxed a two-year dollar peg in June and reached 6.5808 on Jan. 24, the strongest level since China unified official and market exchange rates at the end of 1993. The currency has gained 26 percent since 2005.
“The right thing for China, for America and for the world is for the RMB to appreciate and it really should appreciate not at a 5 percent rate,” Biggs, 78, said. “The best way for the world is a gradual 7.5 percent or 8 percent appreciation. If they don’t let it appreciate, they’re going to have inflation and serious wage inflation. And they’re already starting to have it.”
Consumer prices rose 4.6 percent in December and economic growth quickened to 9.8 percent in the fourth quarter, the statistics bureau reported on Jan. 20. November’s 5.1 percent inflation was the fastest in 28 months. January data is yet to be released.
Biggs said he’s bullish on China because policy makers have managed the economy well.
“I think China is going to be one of the two or three, maybe the best major markets in the world,” Biggs said. “Basically the Chinese have done a really superb job of engineering a soft landing. They did what we should have done going into the crisis. They applied massive stimulus very quickly. They came booming out of their slowdown. They may have overdone it a little bit.”
Growing Consumer Demand
China will become the “world’s consumer” as the economy expands and the middle class grows, Daniel Arbess, a partner at Perella Weinberg Partners LP, said in a separate Bloomberg panel discussion on equity investing in the mainland.
Consumer demand in the nation will be “mind-boggling,” Arbess said today. “The economy is just beginning the get its legs as a consumer economy,” he said.
China in 2009 overtook the U.S. to become the world’s biggest car market, passed Germany as the largest exporter and likely surpassed Japan to become the second-biggest economy in 2010. It may overtake the U.S. as the largest economy by 2027, Goldman Sachs Group Inc. chief economist Jim O’Neill.
The new government in China is unlikely to be destabilizing, Biggs said.
“China is a command economy and a command political system,” Biggs said. “The new government is fully vetted by the old government. I don’t think that’s a negative. For a developing country that started with a low per-capita incoming and is bootstrapping itself, a benevolent dictatorship is the best government.”
Home Price Forecast
In the U.S., the economy is vulnerable to further declines in U.S. home prices, said Biggs, a former chief global strategist for Morgan Stanley. Property values may fall another 5 percent to 10 percent, he said.
Fund managers James Chanos and Marc Faber and Harvard University professor Kenneth Rogoff are among those who have warned of a crash in China if the government can’t stop the property bubble there. About 45 percent of global investors surveyed by Bloomberg last month said they expect a financial crisis in China within five years.
Biggs said he disagrees with Chanos.
“Jim Chanos is probably the greatest living short seller and I have great respect for him,” Biggs said. “But I suggest he go to China before he gets too negative on it.”