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It may be time to short the Chinese stock market lock stock and barrel if speculation about the size and nature of China’s debt is true. The issue is one poor transparency or outright deception by way of hiding debt or reclassifying debt so that it shows up on a different balance sheet. China has become an industrial powerhouse and borrowed along the way. It has attracted huge amounts of foreign investment. The thinking is that no one wanted to be left out of a huge economic advance in an economy that routinely grew at 10% per year. Now as growth rates fall and projections fall even further it may be time to short the Chinese stock market. Precise timing may depend on technical analysis of stocks that trade as ADRs in the USA. Or one might consider buying options on Chinese stocks that trade in the USA with a majority of these trades being puts.
How Has This Come About?
Short the Chinese stock market? Isn’t this the country that grows at ten percent per year and that will overtake the US economy in a couple of decades? Here is a little background info to help give you a basis when you decide to trade Chinese stocks and especially if you decide to short the Chinese stock market. Despite the amount of investment in China fundamental analysis is difficult when large amounts of debt are hidden from the investor. What concerns many is that China often takes government debt off the books. When the Asian currency crisis hit in the late 1990’s Indonesia, Korea, and Thailand were in trouble. China avoided the worst but still found that its banks had written a huge number of loans that became uncollectable when foreign investment faltered with the currency crisis. What China did was to create “management companies” for its four major banks. These companies took over the debt from non-performing loans and issued bonds for these assets. The bonds were for ten years and the problem was swept under the rug. This may have caught up with China as it has pursued rapid growth to maintain political support for the ruling Communist Class.