Texas hedge fund manager Kyle Bass, one of Wall Street’s most outspoken critics of the Chinese government, contends that the country is likely drastically underreporting the economic impact of the deadly Wuhan coronavirus outbreak.
This past weekend, however, he took his complaints about the government to a new level.
“The decline looks to be severe, a double-digit GDP decline,” Bass, the founder and chief investment officer of Hayman Capital Management, told Institutional Investor in an interview last week. Bass and others have been sharply critical of China’s Communist government for the past several years, accusing officials of deliberately printing false economic data to paint a rosier picture of the economy. “The question is: Will China ever print a double-digit GDP decline? I doubt it.”
But over the weekend, Bass drew fire for an angry, now-deleted tweet to Hu Xijin, the editor of state-run newspaper Global Times, in response to a tweet from Hu that aid from the U.S. government was “belated.”
“We should take our supplies and go back home,” Bass tweeted back. “Let the chinese[sic] virus rampage through the ranks of the GT and the rest of the communist party.”
Bass later issued a statement explaining why he deleted the tweet, saying he “felt that it was too harsh for the rank and file of the GT” but adding that he would not apologize to Hu.
“Hu is the mouthpiece of a murderous autocratic government and my feud is with him, the c-suite, Secretary Xi, and the Chinese Communist Party,” said Bass in the statement. “I will never apologize to a self-righteous, attempted manipulator of public opinion.”
The coronavirus was first reported in China’s Wuhan province on December 31 and has since spread quickly. So far, 40,490 cases have been confirmed, and 910 people have died, according to figures published Monday by the World Health Organization.
It is not the first time China has grappled with a global pandemic — SARS (severe acute respiratory syndrome) killed 774 people in 2002 and 2003 — but it is the first time the country has dealt with the issue since emerging as a global economic powerhouse.
“This is uncharted territory from anything that’s happened before, from our perspective,” said Bass in the interview. “The majority of the vibrancy” in China’s economy has come from small- and medium-sized enterprises, he said, which are private. “Their access to credit has basically been turned off.”
Hayman operates two funds based in Hong Kong. Bass said those funds still hold positions in Southeast Asia, but the firm no longer has positions in China.
“Everyone always accused me of having profit motives. Some people would say I spread disinformation about the Chinese government,” said Bass. “Last year, we closed every Chinese position we had and we haven’t had one since.”
But while Bass argued that China’s GDP has declined sharply as a result of the outbreak, he added that when the infection rate starts to decline, a “massive rebound” will quickly follow, as happened post-SARS.
When that will happen is unclear, however.
“We haven’t seen any sign that the outbreak is under control,” he said.
As for what investors should do in the meantime? Not much, as long as you aren’t invested in certain sectors, Bass said.
“I’d be really worried about being an airline equity investor or a cruise line investor, where you have huge fixed cost needs,” said Bass. “For everything else I think there will be a selloff and a snapback like we have seen in the last few days.”
Michael Kelly, global head of multi-asset for PineBridge Investments, sounded a similar note in a research note published February 4.
“If past is prologue – admittedly a big ‘if’ – the effects on the economy and markets may well prove short-lived,” he wrote.
If the effects of the virus start to taper off by this spring, which Kelly believes is likely, “investors may find that not much in the global economy has fundamentally changed,” he wrote. “True, damage will likely mount over the next several months, particularly in travel, oil, and the Chinese economy. And given China’s size and significance, weakness will spread elsewhere.”
But Kelly added that the Chinese government had already enacted stimulus programs to reverse China’s decline. That’s similar to what happened with the SARS epidemic, he wrote. A recession from 2000 to 2002 resulted in similar measures, and although SARS delayed the economy’s recovery by a quarter, it did eventually recover.
“This too could prove to be a dip to be bought,” wrote Kelly.
But Katie Nixon, chief investment officer of Northern Trust Wealth Management, warned against doing so too soon.
“It is far too early to mark a peak,” Nixon wrote in a note to clients. “For investors, and considering past experience with SARS, moving past the peak infection rate has provided the ‘all clear’ sign, allowing markets to move past the hyper-focus on the disease. We are not there yet.”
Nor is Bass done tweeting about China. The money manager was back on Twitter Monday morning, responding to a Wall Street Journal report that the U.S. government had indicted four members of the Chinese military in connection with the massive Equifax data breach that affected 150 million consumers.
“This is the Chinese military and therefore CCP [Communist Party of China] government stealing personal financial information of just about all Americans with a job,” he tweeted, calling the indictments “a game-changer for U.S.” in an email to Institutional Investor.
Bass hinted in an earlier tweet on Monday that civil unrest in China may follow. “The good people of China have lost trust in the CCP,” he wrote.