Doom and Gloom: Is China Set for A Hard Landing?

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(Written by Becca Lipman. List compiled by Eben Esterhuizen, CFA. Data sourced from Fidelity.)

Investors are becoming increasingly concerned over a potential hard landing in China. A gradual slowdown seems unsurprising given that the double digit annual GDP growth China has enjoyed over the last decade could hardly be considered sustainable. However, concerning new predictions from a Bloomberg poll show nearly half of analysts place GDP growth at less than 5% within two to five years.

The expectations for a hard economic landing comes partially in response to China's reliance on export-led and investment-led growth that will likely take hits from the global economic slowdowns. Other factors include a housing bubble, leveling infrastructure growth, a liquidity crisis, and the financial pressure local government debt is placing on the central government.

Furthermore, China's economy is hardly all by the books. Private companies are charged interest rates five times that of state-owned companies, 36-60% versus 7.2% respectively. As a result, China has publicly admitted there to be $470 billion in massive underground banks that provide the companies with more favorable rates. That figure alone accounts for only the country's eastern provinces, indicating the number nation-wide is significantly higher and the economic situation to be even more ambiguous.

Business Insider reports a Goldman note about China circulating this morning "suggested that Chinese stocks could see a major sell-off over its uncertain economic future. With the market already in "attack mode," the note's author reported seeing shorts laid out for Chinese equities."

But not everyone is bearish on China. According to Jim O'Neill the fear of a Chinese hard landing is ridiculous. He believes China "has entered a new phase of development where the quality of growth matters more than the pure quantity, and with it, the sustainability of growth." He believes the country is well on its way to cooling the local housing bubbles and battling inflation issues that will ultimately dissipate all talks of a hard landing.

So, are hedge fund managers worried about a Chinese hard landing? For ideas, we collected data on institutional money flows, and identified a list of Chinese companies that have been dumped by big money managers over the last quarter.

Big money managers seem to be worried about the outlook for these Chinese stocks. Do they expect an economic slowdown to affect these companies more than others? Use this list as a starting point for your own analysis.

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List sorted alphabetically.

1. Ambow Education Holding Ltd. (AMBO): Provides educational and career enhancement services in high school entrance examination and college entrance examination markets in China. Net institutional sales in the current quarter at -1.8M shares, which represents about 7.5% of the company's float of 24.01M shares.

2. Country Style Cooking Restaurant Chain Co., Ltd. (CCSC): Country Style Cooking Restaurant Chain Co., Ltd., together with its subsidiaries, operates a quick service restaurant chain under the CSC brand in the People's Republic of China. Net institutional sales in the current quarter at -675.5K shares, which represents about 5.37% of the company's float of 12.58M shares.

3. E-Commerce China Dangdang Inc. (DANG): Operates as a business-to-consumer e-commerce company in the People's Republic of China. Net institutional sales in the current quarter at -2.0M shares, which represents about 6.22% of the company's float of 32.13M shares.

4. Harbin Electric, Inc. (HRBN): Engages in the design, development, manufacture, supply, and service of electric motors in the People's Republic of China and internationally. Net institutional sales in the current quarter at -3.0M shares, which represents about 20.72% of the company's float of 14.48M shares.

5. JA Solar Holdings Co., Ltd. (JASO): Engages in the design, development, manufacture, and sale of photovoltaic solar cells and solar products, which convert sunlight into electricity in the People's Republic of China. Net institutional sales in the current quarter at -12.1M shares, which represents about 13.78% of the company's float of 87.82M shares.

6. LDK Solar Co., Ltd. (LDK): Engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects. Net institutional sales in the current quarter at -6.1M shares, which represents about 10.98% of the company's float of 55.54M shares.

7. Sohu.com Inc. (SOHU): Engages in the brand advertising, online gaming, sponsored search, and wireless businesses in China. Net institutional sales in the current quarter at -1.7M shares, which represents about 5.66% of the company's float of 30.05M shares.

8. Spreadtrum Communications Inc. (SPRD): Operates as a fabless semiconductor company that designs, develops, and markets baseband processor and RF transceiver solutions for wireless communications and mobile television markets. Net institutional sales in the current quarter at -1.3M shares, which represents about 4.04% of the company's float of 32.19M shares.

9. TAL Education Group (XRS): Provides K-12 after-school tutoring services in the People's Republic of China. Net institutional sales in the current quarter at -418.5K shares, which represents about 3.27% of the company's float of 12.78M shares.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks


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