Chanos talks China, drops hints on bets

Date: Thursday, March 4, 2010
Author: Reuters

For weeks now, short-seller James Chanos has been telling anyone who will listen that China is sitting on a huge property bubble that's going to eventually burst.

But Chanos concedes it could take a quite a while for him and his investors to cash-in on related bearish bets that his New York-based Kynikos Associates is making on companies that supply the raw materials that are fueling China's high-rise building boom.

"It could take three or four years to play out," said Chanos at the Reuters Private Equity and Hedge Funds Summit in New York.

Chanos would not comment on specific company stocks that Kynikos is shorting, or betting against, as part of his hedge fund's big, thematic China play. But he did drop some hints.

The hedge fund manager, who may be most famous for his bear call on Enron, said if China's property bubble eventually bursts it could be bad news for some companies in Brazil, Australia and Canada. Chanos said companies based in those countries are some of the biggest suppliers of raw materials to China.

When asked if he meant companies like Rio Tinto (RIO.AX) or BHP Billiton (BHP.AX), Chanos said "you're heading down the right track." But he declined to be any more specific.

Chanos pointed out that there are not many Chinese stocks that can be shorted directly. And Kynikos, as a general rule, doesn't short currencies or sovereign debt.

He said his fund came to its bearish view on China last summer after spending time researching some mining stocks. He said the fund's research began to crystallize during the fall.

"We weren't the first on this call," he said.

But Chanos said most hedge funds and institutional investors did not begin to pay attention until he began going public with his view late last year.