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China Bust plays


LongHaul
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List of things to (potentially) short. DYHW:

 

100% China names:

YINN

Sohu

Sina

 

Partial-China exposures (i.e. China sales account for a meaningful portion of revenues):

Chipmos

NetEase

MaxLinear

SkyWorks

Reckitt Benckiser

Uralkali

HP

P&G

Ingram Micro

Marvell

Crown Holdings

Avago

Flextronics

BHP Billiton

Rio Tinto

Cypress Semiconductor

Salvatore Ferragamo

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I own some FXI Jan 2017 30 Puts.

 

FXI is bank - heavy, and I agree with Anne Stevenson-Yang's prognosis that if and when China blows, the banks will lead the way.

 

Interesting on the FXI.  Are the banks there as vulnerable as the US?  The last time I looked there wasn't all that much exposure to apartment loans and I have heard that China has big down payments which protects the banks if real estate falls.

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I own some FXI Jan 2017 30 Puts.

 

FXI is bank - heavy, and I agree with Anne Stevenson-Yang's prognosis that if and when China blows, the banks will lead the way.

 

Interesting on the FXI.  Are the banks there as vulnerable as the US?  The last time I looked there wasn't all that much exposure to apartment loans and I have heard that China has big down payments which protects the banks if real estate falls.

 

I don't know any specifics about the Chinese lenders, I'm basing this on the tgheory they are constantly rolling over loans and the projects are not going to generate the funds to pay the loan off. Eventually this game ends. Michael Pettis goes into this at some length too.

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I don't know how betting against Chinese housing works out.  My understanding is that the housing sector may not be as bad as portrayed in the media.  I think industrial debt is more interesting -- although I haven't looked at how to make money on it.  There has been massive allocation in the industrial sector.

 

For example, there is something like $380B of debt for the Chinese steel industry, which is losing money.  They are high cost producers.  Chinese nitrogen fertilizer companies use a coal based process which makes them high cost producers as well.  I'm sure there are other examples.

 

In a capitalistic world, the high cost companies with excess capacity go out of business and the debt gets marked down.  In a communist world, the government props up the industries in some top down way -- at least until the whole communist system collapses.  I have no clue where China falls on this spectrum.

 

Shorting Chinese debt is outside of my scope, but maybe someone here has some thoughts.

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I don't know how betting against Chinese housing works out.  My understanding is that the housing sector may not be as bad as portrayed in the media.  I think industrial debt is more interesting -- although I haven't looked at how to make money on it.  There has been massive allocation in the industrial sector.

 

What's the reasoning/data behind this?

 

'The Chinese home real estate market, mostly units in high-rise buildings, is truly bizarre. Many Chinese regard apartments as capital-gains machines rather than sources of shelter. In fact, there are 50 million units in China that are owned but vacant. The owners won’t rent them because used apartments suffer an immediate haircut in value.'

 

When your real estate market has overcapacity many multiples worse than US in GFC, and the empty apartments trade like depreciating assets...... who said it's not that bad??

 

http://www.barrons.com/articles/anne-stevenson-yang-why-xi-jinpings-troubles-and-chinas-could-get-worse-1417846773

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Most Chinese manufacturer have combined books with their operating business and their speculative real estate.  Since the real estate went down in the last few months, the banks are a lot faster to ask for more equity. Putting a serious strain on the operating side of the business. At my workplace we just had two supplier go belly up in the last few weeks because of this. One  creative way of playing a bust play would be to short a public company with:

  • All products made in China
  • Very concentraded suppliers
  • Known supplier in financial troubles

 

Point 3 is really the hard part tough, one would need to do a lot of scuttlebutt to find it.

 

BeerBaron

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Very interesting stuff Beerbaron and Hswoon.

 

I am a super bear on China.  I call it the Great Delusion because the Chinese real estate bubble is just so insane.  I think it blows big time.  And I am not a permabear at all.  I can't think of one time in financial history where these things ended well.  People have just gone nuts in China and many other places as well.

 

The problem is most short bets with limited risk are expensive.  Puts tend to very pricey and you have to nail the timing.

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