June 24, 2013

Mobius: China to Experience U.S.-Like Housing Crisis

Since China owns banks, no Lehman-style failure will occur, legendary manager says

Mark Mobius was featured in Investment Advisor magazine in February 2011. Mark Mobius was featured in Investment Advisor magazine in February 2011.

Probably shouldn’t have triple-mortgaged the house in Dongguan in order to redo the condo in Tianjin with bamboo flooring.

If it sounds vaguely familiar, it’s what too many Americans experienced in 2008. Now it’s China’s turn. The housing market there is in turmoil, reminiscient of the subprime issues faced in this country, according to Mark Mobius.

While China's housing market problems are similar in scale to those faced during the U.S. subprime mortgage bubble, it won't lead to another Lehman Brothers-style crash, Mobius, the emerging-market fund manager at Franklin Templeton, told CNBC on Monday.

“The similarities could not be denied,” Mobius said, but since Chinese banks are owned by the government, they will not be allowed to fail.

The network notes investor fears have been heightened after a credit crunch last week led to a spike in yields on interbank loans. Some analysts have pointed out the credit crunch was spiked by the Chinese central bank's tightening of liquidity, rather than a loss in confidence among banks.

Still, nervousness led to big drop in Chinese stocks on Monday, with the Shanghai Composite tumbling 5.3% to its lowest levels since early December, CNBC reports.

"The perception of China is they are in the same kind of situation as the United States, and yes, it is true that a lot of loans are going to go bad, and that banks have been hiding a lot of these loans in so-called trust companies," Mobius said at the FundForum conference of asset managers in Monaco.

"We have to ask what the consequence is, what will happen as a result, and the scenario will be very, very different in China, simply because the banks are controlled by the government, so they will not be allowed to go bankrupt."

As a result, Mobius said the liquidity problems faced by Bear Stearns, Merrill Lynch and Lehman Brothers at the height of the 2008 crisis won't happen in China.

Mobius manages some $53 billion in emerging market funds and has more money invested in China than in any other market. 

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