Tim Hannon, Chief Investment Officer at Newgate Capital, is sounding a warning that the risks in China have not gone away with the recent stimulus and subsequent rally. The top 4 Chinese banks have around $700 billion of equity combined, while assets are around $11 trillion, giving them an equity ratio of ~6%. “We think non-performing loans are going to rise markedly of the next few years. They did hit twenty percent fifteen years ago, they’re around two or three percent now. There’s a good chance that equity gets wiped out in the Chinese banking system.” So what can Australian investors do about this? He sees the recent rally in resources as a product of the Chinese stimulus package. “We think it’s a great opportunity to reduce or sell your holdings of resources companies.” Watch the video below for his thoughts.
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