The i-Capital Long Boom

Mr Tan formulated the i-Capital Long Boom Theory as far back as 2002-2003. The theory centred on the transformation of China. A major component of the theory is that the benefits of China's transformation will be felt by the rest of the world and not just in emerging markets. Australia, Africa, Indonesia, Vietnam, Korea, Canada, the United States and others will gain substantially from China's transformation. 'It is an unprecedented event. As China moves into a more balanced development phase, with consumer spending playing a greater role, the rest of the world will benefit even more.'

Addressing the issue of the wide wealth gap between the rural and urban dwellers, Mr Tan says that is a grave concern if China is governed by leaders who are naive, short term-focused and have only their self-interests to serve. 'Fortunately for the Chinese people, and all the others in the emerging economies, China is capitalist in economics but socialist in politics.'

It is this unique combination that makes the leaders in China so acutely aware of the income and wealth gaps, he says. They have been implementing endless measures to move rapid economic development away from the coastal areas, away from the major urban areas to inland China.

Overall, one could argue with good reasons that the property and stockmarket boom in China is still in the early stages. says Mr Tan. 'For sure there will be cyclical ups and downs in China's property and stock markets but the factors driving a secular property and stockmarket boom in China are still in place.'

In comparing China now with Japan in the 1980s, Mr Tan notes that the crash that the Shanghai stock market suffered in 2008 was very severe, acting as a crucial catharsis. It provided a base for the market to start a new bull phase from. In contrast, Tokyo didn't have such a cathartic experience until the 1990s. The stock market in Tokyo did not have a crash from the end of World War II until the end of 1989.

In the 1990s, Japan faced a bursting of three asset bubbles nationwide: residential and commercial properties, and stock prices. China, at worst, may be facing a restricted property 'bubblet' in some major cities. Prices of properties outside the tier-one cities in China did not surge in recent years and are holding up well as the economic growth spreads beyond Beijing, Shanghai and Guangzhou. By the 1980s, there was nowhere domestically for Japan's economic growth to spread to. Development was focused only around Tokyo and Osaka. Growth for Japan had to be shifted to cheaper countries overseas.

The worries in the market now are very much centred on shorter-term, cyclical types of factors, notes Mr Tan. Beyond that, China's economy would become more balanced and its economic growth will be robust and sustainable. Time to short James Chanos, he asks?

The writer is a CFA charterholder.

This article was first published in The Business Times.

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