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Schroder's AA-rated Parbrook: the 'fictitious' China story
by Matthew Goodburn on Oct 11, 2013 at 12:42
Schroders head of Asian equities Robin Parbrook believes China will slow dramatically next year and produce GDP growth well below official figures.
Parbrook has long held a bearish view on China and remains deeply sceptical over its state-owned enterprises.
While he thinks the structural change and efforts to switch from an export focused economy to a domestic growth model will be a painful one over the next few years, and lead to a dramatic slowdown, he is slightly more encouraged by the new leadership's recognition of the problems that face the country as it looks to do the necessary rebalancing.
The Citywire AA-rated manager, who runs the Schroder ISF Asian Opportunities , told Citywire Global: 'The more China pumps up its growth numbers the more people get excited but the numbers are meaningless. The [official forecast for ] 7.8% GDP growth number is super lucky in China but it is a complete lie.'
'State run enterprises can push levers to keep things ticking along but the more [the government] ignores a meaningful rebalancing of the economy the more they risk a huge financial crisis.'
'The government needs to put more money in people's pockets which would make the average man on the street reasonably happy but rebalancing means the crony capitalists would miss out.'
'The more China's banks have invested the more they are in trouble. They continue to claim 15% growth year-on-year but their earnings are fictitious.'
'They are twenty times leveraged so better quality but slower growth is needed. I am worried about the fact that debt to GDP has gone from 110% to 220% since 2007 and CLSA thinks it can go to 240% which would be bad news.'
Wrong side of the trade
Asean markets did well until the end of June but since then, North Asian stocks such as Korean financials, Macau gaming stocks and Chinese internet companies have outperformed and Parbrook admits to being on the wrong side of that trade and suspicious of the reasons behind it.
Parbrook, who also runs the Schroder ISF Asian Total Return fund alongside AA-rated Lee King Fuei, believes the sell side analysts to be talking up the North Asian region to investors, which has led to the rotation out of fully valued Asean stocks into more cheaply valued but poorer quality cyclicals and state-run firms in China and Korea.
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