Jim Rogers Warns of China’s Economic “Despair”

Legendary investor Jim Rogers joins OPTO Sessions to discuss the overexuberance that he believes is ramping up in global markets. One exception to this trend is China, which is going through a period of “despair” following its real estate bubble.

Jim Rogers is one of the world’s most renowned investors.

Perhaps best known for founding the Quantum Fund with George Soros — which returned 4,200% over its first decade versus the S&P 500’s 47% — Rogers has worked and invested through the full range of market cycles.

Rogers holds an undergraduate degree from Yale University and also studied at Oxford. He is the author of several books, including A Bull in China, Hot Commodities, Adventure Capitalist, Investment Biker and A Gift to My Children.

He had made his first million dollars by the age of 35, two years before he retired, to focus on managing his own money while seeking adventure. Rogers lives in Singapore and has an estimated net worth of $300m.

Watching and Worrying

Japan’s Nikkei 225 index hit an all-time high on 22 February, breaking the previous record, which had stood since December 1989.

In Rogers’ view, this is evidence of the positive momentum that currently permeates global stock markets. “America’s making new highs, Japan’s making new highs, many places in the world are now doing well,” he says.

He believes that a recent round of central bank money printing has fuelled these positive moves: “Markets like a lot of easy money—when there’s a lot of easy money, it has to go somewhere. The obvious and easy place for it to go is into the investment markets.”

“Markets like a lot of easy money—when there’s a lot of easy money, it has to go somewhere.”

How long these bullish market conditions will last, however, is the key question for Rogers.

“I don’t think we’re there yet… But I do see the classic signs from previous markets, where everyone starts piling in, and everyone starts thinking it’s easy,” he says, noting that “markets have been getting very expensive”.

“I’m not selling anything short yet. But I am watching and worrying.”

From Optimism to Despair

China, says Rogers, is depressed, unlike US and Japanese markets. He believes that this is a result of the same dynamics he is worried about in the US having already played out there.

“China had a great period of prosperity in the markets. There was a lot of exuberance, and things got ahead of themselves.”

Investors, he says, felt that China’s upturn would continue indefinitely. Now, however, they are much more downbeat on the country’s prospects.

“People turn from great optimism to great despair. In China, the despair is setting in.”

For a contrarian investor like Rogers, this is a sign that the time might be right to invest in China.

“I am looking for investments in China, but I haven't found anything yet,” he says.

“In China, the despair is setting in.”

This despair has been prompted in part by a real estate bubble that was triggered, as Rogers says, by the same thing that triggers every market bubble: overexuberance.

“The central government tried to stop it, but it was not successful. But eventually, as always happens, the market said ‘Okay, this is enough. We’re not going to let things keep going higher and higher.’ Some people start selling, and then more people start selling. Then, eventually, if enough people start selling, you have a bear market.”

Historically, during market downturns such as the one China is undergoing, the US dollar has functioned as a safe-haven asset. While Rogers currently holds a lot of dollars for this reason, he is cognisant that “eventually I'm going to have to get out of my US dollars and put the money somewhere else. I am not doing that yet, but I am looking.”

Artificial Exuberance

Rogers views the concept of the exponential age and rapid technological advancement through this same lens of overexuberance and its cyclical impact on markets.

“When a major technological change comes along, everybody gets excited, they think it’s going to be a huge change and will last forever. And they get more and more overconfident. And that leads to too much excess, and big bull markets.”

This happened, he says, with electricity and the automobile, and it is likely happening now with artificial intelligence

“It has been going on for hundreds of years,” he says.

This overexuberance is, he says, so all-pervasive that finding promising areas to invest in is difficult. “I don’t see many markets that are cheap,” he says.

One exception, however, is Uzbekistan. The country, Rogers explains, suffered under communism but is now under the governance of “people who are running things in a proper way."

“They’re trying to develop proper industry, proper savings and proper investing. It sounds like they’re doing the right thing. You can ask me in two or three years if they did it right or not!”