China is due a bit of a bust, says Hugh Young

China “is probably due a bit of a bust somewhere” Hugh Young, manager of the Aberdeen Asset Management’s Asian funds tells Investment Week. The prime candidate is the overheating property sector.

Young points out that “a lot has been built, but not all for the right purposes. In hindsight we will see whether all the infrastructure China has built is of use.” He also notes that China “has printed as much paper as the US,” which is pumping up inflation.

Young thinks these problems for the property sector will have a knock-on effect on mainland Chinese banks. He worries that they have expanded too rapidly, and have too much exposure to potential bad debt. As a result he is “not too keen on piling into Chinese stocks”, preferring their Hong Kong-listed counterparts.

Yet despite his fears Young, whose Aberdeen Global Asia Pacific Equity fund has underperformed the MSCI Asia Pacific ex Japan index in the last six months, remains sanguine about the long-term effects of a property crash on the Chinese economy.

“If property falls 30% it will have more of a wealth affect, so people will feel a lot poorer. This will obviously dent things but it will not be plunging the country into a complete crisis.” He also acknowledged Chinese policymakers’ attempts to “prick the property bubble” in recent years.

His comments follow a similar warning from veteran investor Anthony Bolton. The Fidelity China Special Situations manager claimed last week that further attempts by Chinese policymakers to reign in the property market would be “unprecedented in their toughness”.

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