CNBC is reporting: China Stocks Cheapest ‘I’ve Ever Seen’: Index Pioneer
Chinese stocks are extremely undervalued and U.S. investors should heavily increase their exposure to benefit from the emerging market’s long-term growth, says Burton Malkiel, author of the financial classic “A Random Walk Down Wall Street.”
“These are the most attractive multiples I’ve ever seen,” said Malkiel, 79, who pioneered the indexing investment philosophy, at a speech Wednesday for Guggenheim Funds at the New York Stock Exchange.
Right now, a typical institution holds just a 1.7 percent exposure to China, according to Malkiel, based on an average 10 percent exposure to emerging markets and China’s 17 percent chunk of the emerging markets pie.
Their overall exposure “should be at least 9 percent to better match China’s contribution to global GDP,” said Malkiel. “And that’s conservative. It really should be 12 percent.”
The economist, who is also chief investment officer at indexing firm AlphaShares, said the best way to capitalize on his China investment thesis is through Renminbi bonds or Chinese equities.
To be sure, not everyone is as enthusiastic as Malkiel. Detractors point to a build out in infrastructure to the center and West of the country that is taking place before a migration in the population. Not to mention rampant corruption and accounting practices.
“These buildings may not be standing in five or 10 years,” said Jim Chanos, president of Kynikos Associates, in September. “You’re talking about an economic system where profits are not maximized for the largest economic actors. You’re talking about a history of horrible lending. You’re talking about a system in which the export-driven model hasn’t been changed by Western demand.”
But Malkiel, who remarked, “Chanos is just talking his book” at the speech, believes China is fostering faster growth by building the infrastructure ahead of the population migration and business growth. Behind his bullish thesis is the belief that domestic consumption will one day account for as much as 50 percent of the country’s GDP.
Who will be right: a famous economist who created the indexes who is playing the role of the ‘house’ or a hedge fund manager (with a track record) who is putting his money where is mouth is and betting against the house?