For the past few years, it has been quite trendy to invest in China.
There has certainly been a good story from this region.
As one of the dominant emerging market economies, the creation of wealth in China has seen the price of stocks rise strongly and there are plenty of arguments suggesting this could continue in the future.
One fund manager is less optimistic.
James Harries, manager of Newton Global Higher Income, believes that the long-term trend for China is down and that, at some point, people will start to wonder why on earth they put any money there at all.
This is a grim warning indeed.
Harries thinks that the 10-year boom in China is coming to an end. He points to the large size of the boom and believes that some kind of bust is currently unfolding.
It is not only the impact on China that investors will need to consider should this forecast prove to be accurate.
A slowdown in China could result in a major impact on a number of currencies. As a result of the forecast, Harries has been hedging some of his exposure to the Australian and Canadian dollar, South African rand, and Brazilian real back to the US dollar.
Forecasts like this do not always prove to be accurate, but should be considered carefully by investors.
Some exposure to China (and emerging market economies in general) makes real sense for long-term investors in a well diversified portfolio.
Investors however face real danger if they got carried away with the China story and exposed more than 5-10% of their portfolios to these assets.
Photo credit: Frank Kehren
