BofA/Merrill: China Will Fall by 30% in 2016

Big China bear out with a compelling research note today, pointing to the looming debt bubble in China and how it usually portends to a cataclysm of monumental proportions.

“Historically, any country that grew debt this fast inevitably ran into financial system problems, including currency devaluation, banking recap, and high inflation, and we do not expect China to be an exception,” asserts Cui. “We believe that the government had maintained system stability over the past few years by allowing various implicit guarantees to get firmly entrenched, which has made the financial system fragile.”

The fragile equilibrium that has endured, he says, is a function of Chinese policymakers’ willingness to trade short-term gain for longer-term pain.

(Of note: Cui’s call doesn’t include a full-scale credit crunch—the disappearance of what’s increasingly become the lifeblood of the Chinese economy—as a prerequisite for the prophesied carnage in equities.)

The A-shares market, according to Cui, is expensive—and if you strip out banks (for which the quality and sustainability of earnings may be in jeopardy in light of a deteriorating loan book), it only gets pricier.

Chinese stocks are doomed. The Dry Bulk Index is at new lows. The price of oil is tanking daily. ISIS is cutting off the heads of people for walking sideways. Donald J. Trump is going to be the next President of the United Steaks.

Need I say more?