In the last few days I've written several posts/articles about China in various places. There has also been a lot of commentary elsewhere in the last few days asking all sorts of reasonable questions about lending, the veracity of the the growth statistics and more general questions about whether steps take in terms of stimulus will foster more "bubbles."
In a recent commentary going around from Andy Xie, you can get some of his points here, he sees a sort of ebb and flow leading to a "collapse like the 1990s Asian crisis. But Xie sees this as a risk for 2012."
I've written countless times about wanting to have exposure where it appears that money must be spent. This includes all sorts of infrastructure stocks, energy stocks, telecom and probably some materials names. More important than that I think is that financials are exactly the wrong place to be. Going with this thought ETFs like FXI, GXC and EWH should be avoided. Interestingly the PowerShares Golden Dragon Halter ETF (PGJ) is currently very light on financials but the mix here changes such that anyone buying that fund needs to keep close tabs. The Claymore China Small Cap ETF (HAO) has a high teen allocation to financials so I would stay away from that.
There are plenty of specialty funds with decent China exposure and most of the EG Shares Emerging Market Sector funds will be heavy in China for anyone comfortable investing at the sector level.
I'm not real concerned with trying to predict something with Chinese banks or insurers as opposed to just trying to avoid something. The financial sector appears to be the weakest link in the chain by far and I would simply rather not have to worry about being right about some bank I might buy. Compare that to the fact that we know the water is bad, we know the air is bad, we know that improving the roads and rails makes the country a lot smaller which broadens the manufacturing base which brings a higher living standards and all that entails to the poorer parts of the country out west. Not that these things could not go down a lot because they could but if they went down a lot I would have much more confidence about them coming back.
Short post, off to the office in Phoenix for the day.
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10 comments:
long term you are correct about financials, but short term they could be HOT. QE, positive yield curve - money is being thrown at these companies.
the banks and the government are pretty much the same thing in China. The Gov is probbly not too interested in protecting banks share price - but will protect the banks existence.
I predict that universities will offer degrees in bubble recognition and prediction by 2012.
How about just one course in bubble recognition for economics, finance, etc. majors
Interesting post by Leo Kolivakis at http://tinyurl.com/m7mx5l this morning. He makes a good case that indexes are more likely to move higher than not as performance anxiety and less-bad numbers draw some big money, pension funds in particular, further into the market. He gives the following advice (which could describe a segment of my portfolio as well as one way I used options; not sure if that's a good thing or not):
"Start investing in hedge funds that are truly market neutral funds. The big money was made in L/S equity, global macro and CTAs and while I still like these strategies, I think it's time to focus on finding managers that specialize in market neutral strategies (less beta, more alpha).
If you are going to make beta bets, focus on certain sectors with long-term potential: alternative energy, biotech, pharmaceuticals, infrastructure (both public and private), semiconductors (SMH,USD) and country plays like China and India.
Last but not least, learn to use a few easy option strategies to protect your downside. It's alright to buy some premium when vol is cheap and sell premium when vol is expensive."
Why is the Fed buying back bonds?
http://tinyurl.com/no6ojd
Available central bank strategies shrink fairly severely in a ZIRP environment. A bond buyback like that is probably part of the Fed's quantitative easing program: This prevents interest rates from ratcheting upwards which, among other things, keeps mortgage rates low and the dollar relatively weak. See http://tinyurl.com/yqfagb
FXI is up 33% YTD.
You missed the boat Rog.
EEM (not a holding) is up more than FXI YTD WITHOUT taking the risk of Chinese financial stocks.
So more risk without a better reward. You are the one missing it.
I sold out of FXI in April, way too early but still took a profit. At less than 10% invested I missed this rally (but I also missed the crash last year). I believe the computers at Goldman have decided the S&P is going to 1100. Then they will go short and drive it back down to 800.
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