George Soros says ‘hard landing practically unavoidable’ for China’s economy

“A hard landing is practically unavoidable,” Soros said. “I’m not expecting it, I’m observing it.” Photo: Simon DawsonBillionaire investor George Soros said China’s economy is heading for a hard landing and will contribute to global deflation. “A hard landing is practically unavoidable,” Mr Soros said in a television interview at the World Economic Forum in Davos. “I’m not expecting it, I’m observing it.”

Soros said while China has resources to manage the situation, the slowdown there has spillover effects on the rest of the world. The investor said he has placed bets on further falls for the Standard & Poor’s 500 Index, which is down about 8.5 percent for the year, and advised that it’s still too early to buy equities, echoing comments from other top investors this week who said they don’t see a bottom yet for markets.

Soros said he that at the end of last year he also bought US government bonds, shorted raw-material producing countries and bet that Asian currencies would fall against the dollar.

“The key issue is deflation,” Soros said, citing the impact of falling oil prices and competitive devaluations, in addition to the slowdown in China. “It’s a condition that we’re not used to.” Earlier in the day, Chinese vice president Li Yuanchao projected an air of confidence about the world’s second-largest economy as signs of a slowdown rattle global markets.  “The contribution of China’s economic growth to world economic growth remains unchanged,” Mr Li said after arriving in Davos, Switzerland. “So do the long-term trends of sound economic development in China and China’s policy of deepening reform and opening up.”  Mr Li said the Chinese government would continue to pursue steadier stock markets and that it had no intention of devaluing the yuan ‘Difficult year’The 85-year old investment veteran said he would be surprised if the Fed raised interest rates again after increasing them in December for the first time in almost a decade. He said the central bank could even decide to cut borrowing costs again, but it would not help much in stimulating the economy because the effect of monetary stimulus is diminishing.

Mr Soros said the Fed made a mistake in raising interest rates when it did, after waiting too long and missing its opportunity. By the time it moved to raise rates, deflation had already set in, he said, and consumers were less likely to spend money on goods because they expected to be able to buy them more cheaply in the future.

2016 will be “a difficult year” in the markets, which could see further declines, the billionaire warned.

“If you have a real bottom, it’s always retested,” he said. Mr Soros’ had already raised concerns about China earlier this month, saying its economy had “a major adjustment problem” and warning that the world may be facing a crisis similar to that of 2008 when the GFC started. It wasn’t the first time that Mr Soros had warned of a 2008-like catastrophe. On a panel in Washington in September 2011, he said the Greece-born European debt crunch was “more serious than the crisis of 2008”.

Mr Soros, whose hedge-fund firm gained about 20 per cent a year on average from 1969 to 2011, has a net worth of about $US24.4 billion ($34.8 billion), according to the Bloomberg Billionaires Index. He began his career in New York City in the 1950s and gained a reputation for his investing prowess in 1992 by netting $US1 billion with a bet that the UK would be forced to devalue the pound. He also made almost $US1 billion shorting the Japanese yen in 2012 and 2013. Bloomberg

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