It looks as though there wasn’t so much to worry about the collapsing stock market in China.
And that definitely proves Derek Sulger, a managing partner at Lunar Capital, right on in his predictions about the impact. Indeed, China stocks had the biggest daily gain in six years.
“This is not 1929,” he said, speaking on a panel at an AVCJ forum in New York. Having worked in China for 16 years, the private equity investor added that he has seen the Chinese stock market go through three or four similar roller-coaster cycles.
He noted that the vitality is caused by retail investors who have shifted money from savings into equities and then get “cold feet” during dips in the market.
“The rally drew everyone out of the woodwork, but not a lot of institutional investors will get hurt,” said Sulger, a former swaps trader at Goldman Sachs who founded the Shanghai-anchored consumer-focused buyout firm Lunar Capital in 1999.
Sulger pointed to some worrisome factors though, specifically the venture capital bubble in China as valuations have risen without the “earnings power to support these valuations,” he said. “That is where the impact will be.”
He pointed to a shortage of well-run and well-governed listed companies in China. ”We need to make sure that reform moves forward. Right now the money has come in before these companies existed. This has the flavor of an obvious dotcom bubble in China,” he said.
Given this climate of incredibly high valuations, fellow panelists John Lin, managing partner at NDE Capital and Paul Robine, founder and CEO of TR Capital, noted that investing in the secondary market is a good strategy for now for private equity investors.
Lunar | July 10, 2015