China’s Shanghai Composite may rally to 8,000 points, or more than 100%, over the next 18 months.
No, it’s not a call from a retail investor in rural China, nor that from the head of China’s stock market regulator, the CSRC. It’s from John Carnes, an investor who has made his fortune through being a China bear, aggressively shorting Chinese listed firms.
The 41-year-old is deemed to be the most successful short-seller of the 28 tracked by Activist Shorts, a website that analyses performance based on bearish research.
Carnes manages around $10 million of private funds from friends and family. While a relatively small amount of money it must be noted that he does not accept funds from external investors, and started with just $3,000 back in 1992.
Anyone who’s traded for themselves would understand that’s no mean feat.
For Carnes, the basis behind his bullish call is simple.
Investors are fearful of missing out, or FOMO, when it comes to making a fortune out of the nation’s stock market.
They watched stocks surge by as much as 150% in a little over six months, hitting a fresh seven-year high in the process, and they don’t want to miss out on the next leg of the rally, presuming it arrives, of course.
“A lot of people missed out on the bull market”, said Carnes in an interview with Bloomberg, adding “this violent correction is a huge buying opportunity for them.”
He points out that household wealth in China surged to an estimated $21 trillion last year, with most of that tied up in property, bank deposits and unlisted businesses.
Stocks, in his opinion, are one asset class that will benefit from the increased levels of wealth. Certainly, compared to more developed nations, Chinese households underinvested in stocks.
According to the latest China Household Finance Survey conducted in the June quarter of 2015, only 8.8% of survey respondents indicated that they were invested in shares.
To Carnes, that’s bullish for future gains in the nation’s stock market.
“There’s tons and tons of money in China, and that money has to go someplace. I don’t think giant bull markets like this end that quickly”.
The chart below shows where the Shanghai Composite will be trading if his call proves to be right.
You can read more about Carnes’ fascinating story from Bloomberg here.