Chinese equities are poised to rise over the long-term even after the rout of the past month, according to Hugh Hendry, the hedge fund manager who profited by betting against banks in the financial crisis.
The country’s shares should gain because of unprecedented economic stimulus and the end of a rally in commodities, Hendry, who runs London-based Eclectica Asset Management, said in an interview with Bloomberg Television’s Guy Johnson.
Hendry drew the attention of investors in 2008, when he made a 31 percent return for clients in a year when the Standard & Poor’s 500 Index slumped 39 percent.
Chinese policy makers have stepped up support for the economy, with the government orchestrating a debt swap for provinces and the central bank accelerating monetary easing. After surging 150 percent in the year to June 12, the benchmark Shanghai Composite Index plunged in a correction that wiped out almost $4 trillion in value. It rose 0.6 percent on Thursday.
“China is very, very much like the Europe of 2012,” said Hendry, 46. “There is a textbook response. Banks can do alchemy. They can take that bad paper and use it as collateral and you get free money to put back into the economy.”
Hendry said the ingredients were in place for a “longer term bull market” in China as an erosion in company margins reverses. “The mystery is why it is so distrusted by us, by the investor community,” he said. Hendry didn’t provide further details about how long prices may increase.
In 2010, the Scottish hedge fund manager was betting a “credit bubble” in China would burst. He bought options on 20 companies in international markets that stood to profit from a slump in the country’s economic growth. Last month, he said he had reversed his position on China with an equity-futures trade, betting stocks will rise.
China’s gross domestic product rose 7 percent in the three months through June from a year earlier, the National Bureau of Statistics said on Wednesday. That beat economists’ estimates of 6.8 percent.
Hendry’s Eclectica, which posted losses in 2012 and 2013, is investing in China after making a wager on the dollar last year that helped the fund gain 26 percent over the past 12 months. It had shrunk to less than $500 million last year from more than $1 billion.
On Greece, Hendry said that while the situation in the country is “desperately tragic,” the debt crisis has a limited impact on the global economy.
“Greece has issues,” he said. “But for me, what’s far more important is that the Europeans, finally at the central banking level, have endorsed the Fed’s policy of 2009” when it embarked on quantitative easing to shore up the economy.
The Eclectica Fund manages $86 million of the firm’s $300 million in assets by betting on broad global macro-economic trends.