At an Asia Society event in New York, billionaire investor George Soros discussed the resemblance of the current China economy to the one that occurred in 2008. According to Soros China’s lending spree could affect the (FXI)(YINN)(ASHR) growth. Indeed, there are similarities in both economies. These current market trends according to George Soros should be a worry to global investors. In 2008, the primary cause of the US market crash (QQQ)(SPYY)(VOO), was the soaring credit levels and the estate bubble.
China and the US market that failed in 2008 are similar. The possibility of that happening as George Soros said in April cannot be 100% verified. The Chinese market had already tumbled in August 2015. The ratio of total debt to GDP remains too high, at 246% in 2015. In 2007 total public debt to GDP ratio for US (SPXL)(VOO) was 2007. When a debt increases to more than 5% of GDP, then it falls under the category of “highly risky”.
On public prediction, George Soros printed a book in 2008 about the financial market. In the book, he predicts a “superbubble” that had built in the past 25 years and was ready to crumble. The book was the third Soros had written that predicts disaster. Gorge Soros attributes his success, to being able to recognize when he makes wrong predictions. Soros has persistently compared the US crisis of 2008 and the current Chinese crisis. Undeniably, China’s position on www.project-syndicate.org/columnist/george-soros has weakened in the global arena. This is due to lack of demand, industrial recession, and the rollercoaster experienced in the stock market. The Chinese government is also on a learning curve. As a result, the government has continuously made policy mistakes.
As per George Soros, the bubble caused by property and construction in China could grow to consume itself. These similarities he draws directly from the one that occurred in the United States in 2005 and 2006. This bubble could keep on growing to the extent that it will be unsustainable. George Soros further claims that the monetary stimulus only extends the inevitable. China growth in the economy was as expected but stimulus measures mainly drove it. This shows that the Chinese economy cannot be said to be on the safe side yet.
Certainly, George Soros has a record of a crying wolf; this is the third time to predict a crisis in the economy. This time, he believes he is correct and states that even when the boy cried the third time the wolves came. He is an investment billionaire, and such wealth is not gained by being wrong, you survive by being able to recognize mistakes. Is George Soros prediction about China correct?
Read more at The New York Times about George.