NEW YORK • Greece's full-blown debt crisis and Puerto Rico's unfolding one have dominated headlines all week, but some of the biggest US investors have China at the top of their worry lists.
Messrs Jeffrey Gundlach, Bill Gross, Dan Ivascyn, Mohamed El-Erian and David Rosenberg are among the money managers keeping a close watch on China, where markets have been under severe selling pressure despite moves by regulators to restore confidence.
Chinese markets, which had risen as much as 110 per cent from last November to a peak in June, have tumbled more than 20 per cent since June 12 in jaw-dropping volatility as money surges in and out.
Just last Thursday, Shanghai's benchmark share index plunged below 4,000 points for the first time since April.
GENIE IN THE BOTTLE?
China is a monster and is the world's second largest economy. It's not to be ignored, given how interconnected China is to global markets and economies.
MR DAVID KOTOK, chairman and chief investment officer of investment firm Cumberland Advisors in Sarasota, Florida
"We discuss China in detail at every strategy meeting and we continue to consider it one of several risks we need to keep an eye on," Mr Ivascyn, group chief investment officer at Pimco, one of the world's largest bond fund managers with US$1.59 trillion (S$2.2 trillion) in assets under management as of March 31, told Reuters.
For his part, Mr Gundlach, who oversees US$73 billion in assets at DoubleLine Capital, said he bought "tonnes" of Treasuries and Ginnie Maes last Friday, partly because the Shanghai Stock Exchange Composite Index was "signalling trouble by collapsing after blowing off to the upside a la the Nasdaq back in 1999-2000".
In fact, the US Treasuries rallied strongly on Monday, with yields falling to one-week lows, with new developments and concerns about Greece and Puerto Rico.
In past years, Mr Gundlach has said the Shanghai Composite was a leading indicator of US stocks. "Like I've said, Shanghai 2014-15 is like the Nasdaq 1999-2000," Mr Gundlach said last Thursday.
Mr Gross, the legendary investor who has been long referred to as the "Bond King", raised warning flags again this week about the risks in China. In his Investment Outlook report yesterday, he said China was one of several events that could precipitate a run on the "new" US shadow banking system, which includes mutual funds, hedge funds and ETFs which are modern banks that are not required to maintain reserves or even emergency levels of cash.
Mr Mohamed El-Erian, the chief economic adviser at Allianz, said he continues to recommend a "barbell" approach, where investors should stay mostly in cash on one end of a portfolio and illiquid assets such as infrastructure, a portfolio of selective tech start-ups and certain private market opportunities in emerging countries on the other.
Mr Rosenberg, chief economist and strategist of Canadian asset manager Gluskin Sheff, said of China: "The country is undergoing a huge deleveraging at a time of lousy demographics and an ambitious rebalancing of the economy."
China's growth has slowed from as much as more than 14 per cent in 2007 to 7 per cent in the first three months of this year, its slowest quarterly pace in six years.
Mr Ivascyn said Pimco has estimates of 6 per cent in economic growth for this year.
"China is a monster and is the world's second largest economy," said Mr David Kotok, chairman and chief investment officer of investment firm Cumberland Advisors in Sarasota, Florida. "It's not to be ignored, given how interconnected China is to global markets and economies."