Carson Block, founder of Muddy Waters Research, has always been bearish on the Chinese stock market. Amidst the volatility caused by the Chinese government’s stimulus measures, Block once again reiterated his stance that China is not a viable market for investment. He also expressed optimism towards the US stock market.
Block has long held a skeptical attitude towards the Chinese stock market and is one of the most well-known short sellers of Asian stocks. In an interview with Bloomberg TV on Sunday (October 20th), he emphasized once again that the Chinese stock market is “not investable”. He mentioned his preference for investing in the Vietnamese market.
From late September to early October, the $9.7 trillion Chinese stock market experienced rapid cycles of surges and plunges. Following the announcement of stimulus measures by the Chinese central bank, the CSI 300 index surged by 25% within five days of trading.
However, Block pointed out that governance issues within Chinese companies, policy unpredictability, and geopolitical concerns continue to pose significant obstacles to the Chinese stock market.
“In the medium to long term, I still can’t see the rationale for investing in China,” Block said. He added that he has no outlook on China’s short-term prospects.
“Ultimately, compared to our positive outlook on Vietnam, China doesn’t give the impression that it really needs foreign investment. I don’t think it intends to absorb foreign capital in the long run,” he stated.
Muddy Waters Research has launched a long-only fund in Vietnam.
Not only Block is pessimistic about the Chinese market, but Rajiv Jain, an Indian billionaire and co-founder and chairman of the asset management company GQG Partners, also believes that the current rebound in the Chinese stock market is short-lived.
Jain previously told Bloomberg, “We’ve seen this excitement how many times in the past three years?” and noted how it eventually faded. He suggested that Beijing should prioritize addressing the real estate crisis.
Regarding Chinese enterprises, he added that despite crackdowns on industries like finance and technology over the past three years, there are few indications that the Chinese government is shifting its preference from state-owned enterprises to private enterprises.
“In China, you have to follow the Communist Party’s instructions,” Jain said.
In contrast, discussing the American market, Block mentioned that with a strong labor market background, the US stock market will continue to benefit from capital inflows. He also expressed his optimism towards seven US giants, including Tesla, Apple, Microsoft, Alphabet, Amazon, Nvidia, and Meta Platforms (Facebook’s parent company).
In a previous quarter, the Federal Reserve’s rate cuts prompted investors to shift focus to other industries, leading to subdued performances by these companies. However, with a series of robust corporate earnings and signs of a strong economy, the S&P 500 index has risen for the sixth consecutive week.
Nonetheless, Goldman Sachs stated that the outstanding performance of the S&P over the past decade may be replaced with significantly lower returns in the next decade.
In a report on October 18th, analysts at the investment bank predicted a nominal annual return rate of 3% for the S&P 500 index over the next decade, reflecting a more broad market outlook. They placed a negative 1% nominal annual return rate at the lower end of the possible outcomes, with 7% representing the upper limit.
The analysts wrote in the report, “Investors should prepare for stock return rates over the next decade that will be close to the low end of their typical performance distribution, relative to bonds and inflation.”