Hendry: May Be Making ‘Error of Judgement’ on China
by Edward Harrison
Back this past September, Hugh Hendry spoke with Bloomberg’s Kevin Crowley about investment strategies, financial regulation and the role of hedge funds. Bloomberg has just released the video and I recommend watching. Hendry has made a name via his sometimes strident and bombastic appearances in the media.
This particular conversation was a more muted, but thoughtful exchange, giving you a more personal perspective of Hendry and his views on the economy. Hendry speaks about how probabilities inform his investing decisions rather than certainties. For example, when discussing China he says the world "may" have made an error of judgment by associating GDP growth with wealth creation. He opines that China can and does grow GDP quickly but wonders whether this growth will translate into longer-term wealth creation.
Clearly, his view is informed by his contentions that China is overinvesting in property and infrastructure, raising GDP growth over the short-term, but misallocating resources and lowering growth over the longer-term. This is the primary question regarding China’s high business investment rates: can China grow into the investments it is now making? Similar overinvestment in telecom and housing in the US over the past two decades has led to a bust and crisis. Will the same happen in China? Or are the Chinese more akin to 19th century America where busts from overinvestment in canals or railroads created busts that did not ultimately impede longer-term growth.
Also see Bloomberg BusinessWeek’s recent profile of Hendry for a long-form written exposé.