Tuesday, October 11, 2011

Jim Chanos Sees 'Deterioration' in Chinese Banks

Jim Chanos, the hedge fund manager who correctly predicted the collapse of Enron Inc. is making more pessimistic predictions about the Chinese economy, after last night when the Chinese government bought shares in several Chinese banks sending their share prices up close to 10%. Bloomberg reports:

Agricultural Bank of China Ltd. (601288) jumped a record 12.8 percent in Hong Kong, leading a rally in the nation’s financial shares after state-run Central Huijin Investment Ltd. started buying the stocks.
Industrial & Commercial Bank of China (601398) Ltd., the world’s biggest lender by market value, gained 6.7 percent to close at HK$4.31 while Bank of China Ltd. (3988) climbed 7.7 percent after the arm of China’s sovereign wealth fund said it began buying shares yesterday in the four biggest banks. The c$ost of protecting China’s bank debt fell.
Central Huijin, set up to hold the government’s stakes in the banks, boosted its holdings after valuations sank below the level reached during the global financial crisis. Huijin helped spur a 21 percent week-long rally in the Shanghai Composite Index when it bought bank shares in 2008 as part of a series of steps taken by China aimed at supporting the market.

However, Chanos is not impressed. On Bloomberg he states that
The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating

The problems in Europe are known and the market has discounted them. However, with all the attention in Europe the market may not be seeing a slowdown in China developing. These "surprises" are what financial crisis are made of.

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