The biggest monthly surge in Chinese banks since January isn’t enough to stop Jim Chanos from shorting the financial shares as the portfolio manager wagers the country faces a credit crisis as bad loans increase.
“You can’t look at a month and say that’s the trend, or something’s changed,” Chanos, who oversees $6 billion as the founder and president at Kynikos Associates Ltd., said in a Bloomberg television interview. Bad loans peaking at 3 percent, “seems awfully Pollyannic,” he said.
The MSCI China Financial Index gained 8 percent in October, outperforming the benchmark gauge’s 5.7 percent advance and the Shanghai Composite Index’s 0.8 percent retreat, on prospects the new leadership will energize the economy. Chanos has been shorting the bank shares since at least February 2010.
Chinese commercial banks may see an increase in non-performing loans from this quarter through the first half of next year, China Orient Asset Management Corp. said on Nov. 1, citing a survey. Bad loans at the nation’s four biggest banks increased by 2.1 billion yuan ($337 million) in the third quarter from the previous three months.
The credit cycle is about to get much tougher in Asia and China specifically, while it’s slowly getting better in the U.S., Chanos, who rose to fame shorting Enron Corp., said.
“Imagine a credit python - the U.S. is the pig at the end of the snake, and China and Asia are the pig entering the snake in terms of deleveraging the banks,” Chanos said.
Shorting involves selling borrowed shares with the view their prices will fall and they can be bought back at a profit.