Tuesday 22 September, 2009:

The highly individualistic research team at SG suffered a small blow earlier on in the summer when their chief behavioral economics theorist in residence and arch value investor cum contrarian James Montier defected to the ’dark side’ and joined the asset allocation committee of fund manager GMO as strategist.

But his former colleagues Andrew Lapthorne and Albert Edwards haven’t hung about trying to recruit a replacement - they’ve just brought a certain Dylan Grice. Its a very smart choice as Dylan had already been penning an excellent online blog called Popular Delusions which has now been magically transformed into an official SG pulpit.

And Dylan’s already hit the ground running in true contrarian style with a paper this week on why the similarities between China and Japan are legion - both share a confucian attitude towards state intervention and both have built their success on a state induced high export, low consumption model plus they both share similar demographic characteristics (a subject Dylan has touched on regularly in the past through his own blog).

But Dylan’s most important point is that pressure from the outside inevitably forces successful societies like Japan (and China) to liberalize their capital controls and FX regimes. This in turn induces heightened liquidity flows, massive asset inflows and the inevitable spectacular bubbles, followed by equally inevitable, decades long grinding bear markets.

Now Mr Grice is not for one minute suggesting that China is about to enter in a decades long bear market - quite the opposite in fact! Value cynics like myself may think that China is already horribly over-priced but I think the writing is on the wall. Chinese markets will wobble and then pick up a real head of steam. Property markets will boom. China will experience the mother of all speculative booms over the next 2 to 5 years and investors will be tempted to jump on the trend.

But their market timing skills better be acute because China will also within the next decade experience a huge stock market collapse. Not 10 or 20% - a bad day. But 50 to 80% falls.

David Stevenson is also one of the Four Wise Monkeys at the online TV investment programme www.4wm.co.uk

adventurous@ft.com