The vast majority of financial crises have been preceded by the rapid accumulation of debt. For recent examples, we need only look back to the sub-prime housing crisis in the United States and European sovereign debt crisis. Perhaps the defining characteristics of the current cycle are the rapid build-up in Chinese corporate and local government affiliate debt, and the explosion of US non-investment grade (“High Yield”) debt. Since 2008, China’s debt has leapt from 170% to 250% of GDP with much of that additional leverage underwritten by thinly capitalised, smaller banks (shareholding, city & rural) that have managed to grow their share of lending from 30% to 45% of China’s banking system assets. As the government deals with the looming end of the credit cycle, investors should expect the larger banks and other well capitalised State Owned Enterprises (SOEs) to perform a degree of “national service” by participating in bail-outs of these weaker institutions. Read more (VIEW LINK)
Jacob Mitchell found Antipodes Partners in 2015, aiming to take advantage of the market’s tendency for irrational extrapolation, identify investments that offer a high margin of safety and build portfolios with a capital preservation focus.