China’s biggest bear turns bullish

The biggest, most successful bear on Chinese equities just turned bullish. If that isn’t enough to make you consider jumping into the market, we don’t know what will.

After building a career betting against Chinese companies, Jon Carnes, considered one of the best short sellers worldwide, says now is the time to buy Chinese stocks, reported Bloomberg.

Better known by the online identity Alfred Little, in 2009 Carnes started researching Chinese companies he thought were pumping up their financial statements. At least eight of those companies have been delisted or charged with fraud. However, the authorities didn’t look kindly upon his negative reports and Carnes was forced to flee the country in 2011 to avoid his own fraud allegations.

But now Carnes predicts that the Shanghai Stock Exchange Composite Index may surge to a record 8,000 in the next 18 months. He says the reasoning is simple. The stock market’s surge to a seven-year high in June caught most Chinese investors by surprise, and they’re determined not to miss the next buying opportunity.

“A lot of people missed out on the bull market,” Carnes told Bloomberg. “This violent correction is a huge buying opportunity for them.”

Considering most international money managers see more declines in a market they consider a bubble being propped up by unjustified government intervention, Carnes’ optimism seems like a voice in the wilderness.

Carnes told Bloomberg Chinese shares have room to rise as more domestic speculators pile into the market.
According to Credit Suisse Group, China had household wealth of about  $21 trillion last year. Yet, in the latest China Household Finance Survey, only 8.8% of respondents said they owned equity holdings in the second quarter of 2015. Most investments are in real estate, bank deposits and unlisted businesses.

“There’s tons and tons of money in China, and that money has to go someplace,” Carnes said. “I don’t think giant bull markets like this end that quickly.”

His stock picks include U.S.-listed E-Commerce China Dangdang and Jinpan International.