China's fresh boom nears peak just as amateurs pile in

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The mini-boom has caught hedge funds and Western asset managers on the wrong side of some very large trades. The fiscal and monetary stimulus began in the second half of last year and has been building towards a climax ever since - with an accelerating growth of the money supply that invariably precedes a burst of growth -  yet some funds continued to bet on the narrative that China was hurtling towards imminent crisis. They played the "short China" trade through proxies such as the Australian dollar or commodity futures.

The most spectacular casualty has been Crispin Odey. His flagship European Fund has lost 31pc so far this year, following a painful streak for his stable of funds late last year. 

He called the end of the global cycle as far back as January 2015, eyeing the greatest "shorting opportunity" since the Lehman crisis. "We used all our monetary firepower to avoid the first downturn in 2007-09, so we are really at a dangerous point to try to counter the effects of a slowing China," he said.

While 2015 was indeed a wild year in China, he misjudged the ability of the authorities to keep the game going, and missed the early warning signals of a monetary rebound.  

Kyle Bass from Hayman Capital, who won the jackpot shorting US subprime debt, has had less luck venturing into the complexities of Asia. He bet prematurely on bond meltdown in Japan, later admitting that he was "dead wrong".

He has since bet on a 30pc yuan devaluation of the Chinese yuan, warning last September that the country faces a banking crisis five times larger than the subprime failures, with over $3 trillion of losses. The yuan has risen against the dollar so far this year.

Financier George Soros has issued his own such warnings, noting an "eerie resemblance" between China's bubble and the build-up to the Lehman crisis. "China re-lit the furnaces. Stimulus can buy you additional time but it makes the problem that much bigger," he said.

Yet Mr Soros cautioned on timing, noting that the US bubble went on for two years after it was already clear to many that trouble was coming. "Since it feeds on itself, it can reach the turning point later than anybody expects," he said.