Chanos Holds China Despite “Quicksand”

Chidem Kurdas

Jim Chanos is one of the very few managers who has succeeded over the long term with a predominantly short strategy. What’s his secret?

It looks like Mr. Chanos hedges his short bets a bit. He said at an interview at a conference last month that he remains convinced there is a property and fixed asset bubble in China and given the weakness of the banking system a soft landing is unlikely. “Chinese banks are built on quicksand,” he said.

“They should be sending a thank you note to Greece and Spain for keeping them out of the limelight.”

Nevertheless, he’s been holding the S&P China exchange-traded fund as well an iShares fund that tracks the MSCI emerging markets index. To be sure, these are small holdings in comparison to his shorts. Still, a little hedge.

But probably the more important survival tool in tough times for Mr. Chanos’ firm, Kynikos Associates, is its distinctive fee benchmark. When the stock market as a whole goes up, short selling becomes particularly dangerous. In the interview, he explained that his performance fees are benchmarked to the market.

When markets go up, he receives a performance fee even if his fund is flat. That would help keep Kynikos going in a strong market where it is almost impossible to make money from short selling.

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4 Responses to “Chanos Holds China Despite “Quicksand””

  1. China in Yale University Endowment « HedgeFundSmarts Says:

    […] on the Chinese economy.  This is not altogether a surprise. The economy has been slowing down.  Short seller James Chanos predicted a bust in Chinese markets for some time. Some US investors sold off their holdings in 2011 or early this […]

  2. China Short Squeeze; Chanos Hedge « HedgeFundSmarts Says:

    […] have to replace borrowed shares within months. But Mr. Chanos appears to have a hedge—he holds the SPDR S&P China ETF.   Moreover, in six months he’s about doubled the SPDR S&P China ETF shares he owns. The […]

  3. Chanos Long and Short Energy | HedgeFundSmarts Says:

    […] of years ago, after he famously talked about being bearish on China, he nevertheless held an exchange traded fund investing in Chinese stocks. He at the time expected a Chinese financial meltdown and now may be waiting for the worst to come […]

  4. Chanos Goes for Chinese Large Caps | HedgeFundSmarts Says:

    […] a coming crash in China, Mr. Chanos balanced his shorts a bit by buying a Chinese stock index, initially in the form of a broad-based S&P China fund. He’s now moved on to the iShares large-cap […]

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