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Investors pulled $15 billion out of the BRICs in 2011 as the European sovereign debt crisis escalated and the world economy decelerated.In China, all the chatter was about its shadow banking problems, its property bubble, and its risk of a hard landing.
Naturally, investors are anxious about pouring their money into emerging markets. And China, once an emerging market darling, is seeing bearish sentiment on the rise.
Speaking at the Bloomberg Link Conference Peter Chiappinelli, portfolio strategist at Grantham, Mayo, Van Otterloo & Co. (GMO) said Wall Street has sold GDP growth as “the road to riches,” but argued that there was no correlation between GDP growth and stock market returns. Chiappinelli spoke of a three tier short on China:
“We’ve applied a more surgical approach to how we wanted to construct a short. We call it a three tier short. Three themes all tied to infrastructure and real estate.
Tier 1 would be those names that are directly tied to China real estate, China development, China banks, China cement manufacturers, with an obvious link to China real estate.
Tier 2 we would describe perhaps as less obvious, think Australian mining.
Tier 3 even less obvious back to your global comment, everything is tied together. You can play a China short through European luxury goods, through BMW, through Burberry, those kinds of names, vast majority of incremental growth is coming from mainland China. And we think they are very very exposed right now to a potentially dangerous situation. So it’s more of a China theme that goes well beyond China’s borders.”