Here’s how legendary short-seller Jim Chanos was positioned ahead of the Evergrande crisis as he warns it could be ‘far worse’ than Lehman Brothers collapse

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Jim Chanos CNBC/Getty
  • Evergrande could end up being “far worse” than the 2008 collapse of Lehman Brothers, Jim Chanos told the Financial Times.
  • “The whole Chinese property market is on stilts,” said Chanos, whose infamous bet against Enron made his firm huge profits.
  • China will need to seek out “new growth drivers, or downshift somewhat semi-permanently into a lower level of growth,” he said.
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Legendary short seller Jim Chanos said Evergrande could end up being a “far worse” episode than the 2008 collapse of Lehman Brothers, bucking the conventional wisdom in an interview with the Financial Times.

Over the last year, he has added a bet against HSBC to his global short fund, citing the bank’s exposure to Chinese loans, according to the FT. Earlier reports have revealed that big investors like BlackRock and HSBC upped their stakes in Evergrande bonds in the weeks leading up to its market-shaking liquidity crisis.

“There’s lots of Evergrandes out there in China – Evergrande just happens to be one of the biggest,” said Chanos, whose famous bet against Enron made his firm huge profits. “But all the developers look like this. The whole Chinese property market is on stilts.”

The Kynikos Associates founder told the FT that his main worry was not that the Evergrande episode in itself would be devastating, but rather that the heavily indebted property developer was just the tip of the iceberg.

“In many ways, you don’t have to worry that it’s a Lehman-type situation but in many others, it’s far worse because it’s symptomatic of the whole economic model and the debt that’s behind the economic model,” he said. “If you try to deflate this bubble, it is fraught with risks.”

Chinese policymakers and analysts have long worried about whether China’s swift, stable growth trajectory will prove sustainable as the country moves to cut down the large piles of debt accumulated by the public and private sectors.

China will need to seek out “new growth drivers, or downshift somewhat semi-permanently into a lower level of growth,” said Chanos.