Wednesday, 19 October 2011

Next on Block’s short list: China

Carson Block, the scourge of Sino-Forest, calls Chinese consumer talk as ‘overblown’

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Guanyu 道 said...

Next on Block’s short list: China

Carson Block, the scourge of Sino-Forest, calls Chinese consumer talk as ‘overblown’

Bloomberg in New York and Toronto
17 September 2011

Carson Block, the short-seller who runs research firm Muddy Waters, says US investors are too eager to put their money into China where consumer demand is overstated.

“The idea of the Chinese consumer has always been somewhat overblown,” Block said yesterday on a panel at a Bloomberg Link Conference. “Part of the reason for that is that you have luxury-goods manufacturers such as Louis Vuitton that report outstanding sales in China.”

Muddy Waters research alleging Sino-Forest had overstated timber holdings prompted about a 70 per cent slump in the firm’s shares. Sino-Forest has denied the allegations.

Businesses are turning to China to bolster sales as rising unemployment and government indebtedness damp confidence in developed nations.

Inflows of overseas cash are exacerbating Premier Wen Jiabao’s campaign to control inflation while higher interest rates and tighter lending limits are undermining attempts to make consumers a bigger driver of the world’s second-largest economy.

Chinese government data last week showed retail sales growth slowed to 17 per cent in August, less than the average of the past five years.

Analysts at Capital Economics, a London-based research group, estimate that private consumption in China may have fallen to 34 per cent of gross domestic product last year, the lowest level since the country began opening its economy to the free market more than three decades ago.

“We see the tall, shiny buildings in Shanghai or Beijing and we meet with the Chinese who have graduated from Harvard, who have somewhat been inculcated with Western values, and we mistakenly extrapolate this to the large portion of the economy,” Block said.

Sales of luxury goods in China are projected to surge eightfold to €74 billion (HK$795 billion) in the 10 years to 2020, according to CLSA Asia-Pacific Markets.

Block had a short position on Sino-Forest shares, as disclosed in the report. Short-selling is the sale of borrowed shares with the hope of profiting when they fall.

Meanwhile, the Ontario Securities Commission agreed yesterday to modify a temporary trading ban on Sino-Forest shares to allow some outstanding options to be exercised.

Canada’s main regulator said it was “satisfied that it would not be prejudicial to the public interest” to modify the order.

The Toronto-based regulator last week extended the ban to January 25 as it probes allegations against Sino-Forest. It issued the cease-trade order on August 26 and said that officers and directors of the company may have engaged in acts “related to its securities” that they “knew or should have known” perpetrated a fraud.