China has the potential to be the world's next asset bubble, PSigma Investment Management suggests.
Tom Becket, the firm's head of global investment management, warns growing overcapacity in the economy could lead to disappointment over profit-growth expectations next year.
In addition, he is concerned China could be following the template set by Japan policy makers in the 1980s, using stimulus measures to switch the emphasis of growth from exports to domestic consumption.
"So far they are doing a respectable job, including cutting car taxes, providing subsidies for white-goods and urging their banks to go on a lending spree to end all lending sprees," he says.
But while these are "potent" boosts in the short term, Becket says it is not sustainable.
"The Chinese need to find long-term solutions to urge their saving citizens to spend more money," he says.
Recently, Becket notes Societe Generale analysts described China as being the greatest bubble in history.
However, the manager is more judicious, believing it is far too early for China "to claim that mantle".
In the meantime, the firm will continue to invest in themes, which will benefit from China's re-emergence as the world's biggest economy, "but always remember the harsh lessons of the past".
