Concerns over the Chinese stock market have accelerated a massive sell-off in the global equity markets. Despite the growing fear, short seller Jim Chanos thinks that investors may still underestimate the stock market collapse in the world’s second-largest economy.
During an interview on CNBC’s Fast Money: Halftime Report, Chanos of Kynikos Associates described the latest crash in the Chinese stock market as worse than it appears. (Source: CNBC, August 24, 2015.)
“It’s worse than you think,” he said. “Whatever you might think, it’s worse.”
Although he has not specified the recent crashes as a correction or bear market, he noted, “U.S. stocks show, we’ve gotten a little complacent.”
Over the past six weeks, the Chinese stock market crashed more than 41%, wiping this year’s gain. On the other hand, the slump in the country’s economy forced authorities to devalue the yuan in order to boost exports and help the troubled economy grow.
“People are beginning to realize the Chinese government is not omnipotent and omniscient,” he said. “In fact, like many of us, sometimes they don’t have a clue.”
Chanos suggested that investors should shift their focus to China’s slowing economy and the potential consequences that may have on American companies. For instance, concern over the country’s demand for oil is believed to be one of the factors in oil prices declining recently.
“Now that demand is flagging a little bit, the oversupply situation has just swamped the real demand,” he noted.
Chanos is well known for his short bets. Currently, he is “betting against a number of the big guys” in the energy sector, particularly Royal Dutch Shell plc (LSE:RDSA-L) and Chevron Corporation (NYSE:CVX).
Chanos also unveiled his bet against SolarCity Corporation (NASDAQ:SCTY), citing weaknesses in the company’s operational structure.