One tried and tested rule in investment is that the bigger and more widely shared the worry, the less likely it is to be realised. Remember Y2K and the Sars epidemic? Both produced warnings of global disaster. Neither turned out to be anything like the threat that doomsters had predicted. Contrast that with the subprime mortgage crisis, whose dimensions only became widely apparent some time after the crisis had already broken. In the years when investors should have been worrying about uncontrolled bank lending, most were too busy loading up on anything they could buy with cheap credit to notice the impending disaster that their own insouciance was helping to bring about.
On this measure, if nothing else, investors looking at China today should not have much to worry about. In the media, and on trading floors around the world, whether China’s economy is overheating and the Chinese stock market is moving into ‘bubble’ territory have been popular topics for months. Industry data shows that foreign investors have been pouring money into China-related funds for some time, reinforcing the increasing involvement of domestic Chinese investors. The amount invested in China funds doubled in the course of last year, driving the Chinese stock market higher, and prompting concerns that it could crash just as it did in 2007-08, when the Shanghai Composite Index fell by 70 per cent in 12 months.
Market pundits such as New York hedge-fund manager Jim Chanos and economist Nouriel Roubini, both notable for being among the few to predict the global financial crisis, have lent their support to the proposition that China could be the next big bubble. On the other side are those such as Jim Rogers, co-founder of the Quantum fund, and Jim O’Neill of Goldman Sachs, who argue that what the world is witnessing in China is a spectacular change in economic status that offers investors opportunities on the same scale as, say, the United States in the late 19th and early 20th centuries.

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