Sometimes It’s Not Easy Being a Bear

Andy Xie of Morgan Stanley explains why his bearishness on China’s property market has become difficult to, er… bear:

“I lost 20% because of you,” a schoolmate in Shanghai screamed at me. “I had to hire several guys to line up for seven days and seven nights to buy three flats last month.”

Last October, he read in the paper that I had said Shanghai property was a bubble. He was scared and held off his purchases. Then the prices kept rising. By January he couldn’t take it any more and jumped in.

I felt terrible. I didn’t say that the bubble was popping. I said that the bubble could last for months but not years. The basic assumption was that the dollar would bottom in 2005. I thought that the Fed would raise interest rates above 3% and that US consumption would weaken substantially in 2005, which would cut off the hot money flow to Shanghai. It would be hard, I felt, for the Shanghai bubble to survive 2005.

…My schoolmate called me again and wanted me to meet up with someone who could explain to me how Shanghai’s property market worked. I went to a bar in an expatriate area. It was the sort of place that charges for a drink as much as a waiter earns in a day.

When my schoolmate saw me, he called me over and whispered something into his pal’s ear. He took a hard look at me and then burst into laughter. “You scared me,” he said, pointing a finger at me. “I bought 20 flats last October. You then said it was a bubble. Now, Hong Kong property agents call me every day and offer 20% more.”

“Yeah, I listened to him and missed 20%,” said my schoolmate. “I should call him Mr. -20%.” He was not happy.

“Mr. -20%.” The chap was laughing uncontrollably and nearly fell off the chair. “You will soon be Mr. -50%. Come, come, and have a drink. It is on me.”

I was thick-skinned and poured down the drink. I needed it.