“I think the way to handle this kind of volatile and different environment, with civilisation in crisis, is to be able to afford losing a lot of money,” he said at the Bloomberg Markets Most Influential Summit yesterday.
He blames crises on populism in the US and Europe, where the governments are focusing on printing money and leaving the structural reforms to the next generation.
“You make a lot of money when you can, because there will be golden periods when the door is wide open for courageous investors to make a killing. You go and make that killing, because when the next crisis comes you might lose half or more.”
One market to fit this tactical investment strategy is China, he noted. The China market is volatile, with relatively cheap valuations.
The narratives for a China story should not focus on economic growth or structural reforms, but on social stability.
For instance, he said investors should understand that it makes sense for the Chinese government to move cautiously on state-owned enterprise reform because millions of people could lose jobs.
“An unstable China, together with the breakdown of Western civilisation, could create the risk of an historic crisis that we don’t really want to see”.
Buy during a crisis
Cheah is favourable toward new economy stocks, such as healthcare and internet companies, but also likes some Chinese oil companies.
“In fact, if I were an investor and not running a fund, I would probably buy nothing.” His explanation is that if one believes a crisis is inevitable, “buy during the crisis and sell during prosperity”.
Views on China are divided. On a separate panel discussion at the same event, Blackrock head of China equities Helen Zhu said the Chinese government has the time and the tools to deal with mounting corporate debt, although the markets will get bumpy along the way.
Addressing fears of continuous capital outflow, she said the country will not need to maintain substantial foreign exchange reserves after the currency is gradually internationalised.
But David Cui, head of China equity strategy at Bank of America Merrill Lynch, warns China might fall into the path of Japan, where private sector loans are shifted to government debts.
That could undermine government efforts to continue supporting the RMB by spending foreign reserves.
State-owned enterprise reform also puts obstacles on the path to a vibrant economy, he added.
“The way it is going, I think within five to ten years, most of the profitable internet companies will be taken over by SOEs,” Cui said.
“My biggest concern in the long term is that the state is essentially taking over the economy gradually.”