“Unlike 2008, they do not have the scope to do that again. Stimulus was massive in 2008 [with a 200% credit-to-GDP ratio] and that money mainly went into creating a property bubble,” he said.
He went on to say the investment case in China can only ever be “fairly bearish” if you look at it from a bottom-up perspective, adding that most people look at China the wrong way, focusing on the macro dynamics rather than the companies’ performances.
“The long-term trend has been miserable,” citing that an investment made 20 years ago – when he started in the business – would have not even broken even today.
Using returns from MSCI Asia ex Japan and MSCI World tells the same story, in that they give the same returns on an investment made in 1992 today but with great volatility in Asia ex Japan.
This is largely down, he suggests, to the high proportion of state-owned enterprises and quasi state-owned businesses meaning many companies do not focus on providing shareholder value and are beholden to the state.
At the same time, GDP growth has gone up multiple times proving the decoupling between China’s economic performance and that of its stock market.
To say Parbrook is a bear on China is probably not doing him justice as he himself admits: “I am bearish, cynical, bitter and twisted. I don’t have to tell bull stories; I prefer to tell the truth.”
