China’s economic recovery from the coronavirus pandemic remains lackluster at a time when one of China’s biggest real estate companies is in a slump. Meyer, Ankovic and Scott’s partner, Dennis Ankovic, told Yahoo Finance Live that the situation “could get much worse.” “Real estate accounts for 70% of household wealth held by the average Chinese,” Ankovic said. .
video transcript
Diane King Hall: Chaos in China continues. New home prices in the world’s second-largest economy fell for a second month in a row in July, fueling fears that the escalating property crisis could wreak further havoc on the faltering economy. Right in the middle of the storm is Country Garden, a troubled developer who defaulted on its bond payments this month. And now, according to Bloomberg, even large trusts may be close to default.
This morning, the People’s Bank of China launched its biggest short-term cash injection since February. New partners Dennis Ankovic, Mayer, Ankovic and Scott. Dennis, thank you very much for joining us this morning. First of all, how bad do you think the Chinese economy could get from your perspective?
Dennis Ankovic: Diane, I think things could get much worse. I’ll give you one statistic. Real estate accounts for 70% of the household assets held by the average Chinese. Even if real estate falls, it will not affect the market. It affects everyone in China. As one of our previous guests said, I have never been so worried about the Chinese economy.
Brad Smith: Are we witnessing the beginning of a lost decade for China?
Dennis Ankovic: Well, going back to the mid-1980s, Japan was going to be number one. It was trying to rule the world. The bubble period was reached from 1986 to 1992. But I ran into a situation very similar to today, Brad.
A large amount of money was invested in real estate, which led to an abnormally high real estate price, and then a sudden collapse. Because of China — I’m sorry, Japan was hit by deflation at the time. So in 1992 their stock market, the Nikkei Stock Average, was about $30,000 or he was $32,000, but it dropped to $8,000. And actually, I think it’s probably been less than a year here he is. Japan’s deflation is very similar to what we see in China.
Diane King Hall: And Dennis, just a quick question, what does China need to do with the real estate sector, the latest shoe in China, if you will? Should they then have to rely on household budgets to stimulate the economy, or is there not enough there?
Dennis Ankovic: Good question, Diane. Two things. No, in my opinion there is not enough Chinese to deal with it. The fact that they dealt with 10 basis points and told property companies last week that they would give them another year to pay off their debts isn’t enough. At this point, I think it will require significant intervention by China. not coming
I think it was yesterday, we are Wednesday, but on Monday there was a meeting of the Politburo, China’s senior ruling group, and they looked at this situation. They said we will work on this. We will deal with it. At the moment, I think the contribution of the Chinese leadership is too little. Hope it’s not too late.
Brad Smith: Show friend Matt Maley of Miller Tabac Dennis said in a morning note that he was very close to removing the word “latent” from the term “potentially contagious.” Any thoughts on it would be appreciated. If so – and if that is true, then even considering US companies and international companies that rely on China for some and even more of their growth, the rest of the world, the rest of the stock market where will it be What additional impact could it have if partnerships were applied to everything from manufacturers to sales to the economy?
Dennis Ankovic: Brad, let me break it down into two parts. First of all, the first people, or the first countries to suffer, will be those in Southeast Asia. Because not only do they sell a lot of stuff to China, but they also get a lot of orders from Chinese people. I think their market will be hit first. As you know, the US economy is pretty healthy today, but there is no doubt that eventually a weakening China will reduce exports and imports from the US, impacting the market.
Diane King Hall: And Dennis, I’d like to hear about what China has done this week, the opposite move of pulling back the curtain, closing the curtain on the data on jobs. What should we think about it? I mean, China in general has an opaque nature because we know it’s clearly not a democracy. But how concerned should it be, and are we concerned about it enough?
Dennis Ankovic: Diane, China has never been transparent even in the best of times. It’s been a little more transparent lately, but what you’re talking about is the youth employment rate in China, which I think is less than 25%. I think she’s around 21% or 22% right now, which is the best it’s ever been. When the Chinese saw it, they thought it was news that the central government really didn’t want to report.
In other words, China, which was translucent, is now very opaque, and that is the very Chinese thing. For example, when the Chinese economy was sluggish in 2021-2022 due to the impact of COVID-19, it turns out that quarterly forecasts for China’s future growth rate were simply not released by the government. Masu. So they are not happy about the bad news. I think this is a good example, Diane.
Brad Smith: In the series of shocking moves the government has made regarding the economic data we see and how it responds, what are the next shoes to drop from your perspective?
Dennis Ankovic: I think the next dropped shoe will make their real estate market even worse. There is a Chinese trust company called [NON-ENGLISH SPEECH], if I put it correctly. However, as a trust company, it is a shadow bank. And now Chinese banks pay 1% or 1.5% when you deposit your money there. But these shadow banks, so-called trust companies, pay you 6%, 7% or 8%.
[NON-ENGLISH SPEECH] Yesterday or Monday, Monday or Tuesday, whatever day it was, I announced that I would not be able to repay my family obligations. They are – [NON-ENGLISH SPEECH]is an example of a trust company with 1 trillion RMB or RMB of money sleeping there. I mean, if you’re an average Chinese and you’ve invested a lot of money and you see the real estate market going down, it’s very serious. I don’t think the situation we’re seeing will end or improve anytime soon, Brad.
Brad Smith: Dennis, thank you so much for taking the time here this morning to provide insight and perspective on a very big issue that deserves the close attention of everyone in the investment and business community. Meyer, Ankovic and Scott’s partner, Dennis Ankovic. This time, thank you very much.
