China 'Triple Bubble' Is Biggest Risk To The World

In a new report, Credit Suisse analyst Andrew Garthwaite warns global investments of the trouble that Credit Suisse sees brewing in China. According to the report, the world could be witnessing the simultaneous bursting of three of the largest financial bubbles in history based on the most recent data out of China. The triple bubble According to the report, China has formed the third largest credit bubble, the largest investment bubble and the second largest real estate bubble of all time. Chinas recent high deflation rates, falling housing prices, forex outflows, slumping deposit growth and weak job offer to application ratio are all at or near historical extremes and signs that the Chinese economy could be in real trouble. Despite some signs of near-term stabilization, Garthwaite projects that a 15 percent drop in Chinese housing prices or a deposit growth rate decline to zero would lead to a China GDP growth rate below 3.0 percent. European autos will suffer Credit Suisse sees the turmoil in China weighing heavily on European auto makers, who generate 41 percent of their profits from China. "We stay overweight of auto components and think Cintinental European car sales will rise by c20% over the next two years; thus, re remain positive on French and Italian autos, but underweight German OEMs," Garthwaite explains. Other China plays Overall, Credit Suisse is bearish on many China-exposed investments. The report specifically mentions that luxury brands (Burberry Group

, LVMH Moet Hennessey Louis Vuitton

), capital goods (SKF

, Sandvik

), bulk chemical companies (BASF

), testing companies, the Australian dollar and Australian equities all have particularly high exposure to China.