About Me

Retired chief investment officer and former NYSE firm partner with 40 years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Monday, July 28, 2014

China -- The Boys Have Fired Up The Dragon

Back in early Jun. I posted that the PBOC had turned accomodative with monetary policy
and that the equities market could eventually get interesting for a long side trade. See
China -- Big Red Dragon Getting Cranked Again

That post has a link to the Shanghai Exchange index ($SSEC). This post has a link to the
SPDR China ETF (GXC) which is light on liquidity but has given long side traders a better
bet in recent years than the Shanghai. GXChttp://stockcharts.com/h-sc/ui?s=GXC&p=D&yr=3&mn=0&dy=0&id=p71321227542

The GXC has quietly followed along with the SPX  since late 2011 as a beneficiary of QE 3
liquidity from the Fed while the Shanghai has continued to unwind from the 2006 - 07
major bubble. The GXC hit a record high just above the $100 mark in 2007 and there is
significant resistance now around the low $80s. It is an overbought index and could under-
perform the Shanghai going forward if the Shanghai gets some long missing manic action.
But, GXC has been a nice trade for which I thank the PBOC.

The Shanghai is getting itself overbought, too. Next resistance level for this guy is 2250 with
big time resistance set at 2450. Long time readers of the blog will recall that if folks turn
more serious about China being able to continue real GDP growth at 7.5% annually for the
next several years, that I think the Shanghai should trade up around 2400 - 2500.

If you read the early Jun. post, I argue that China has put its economy in harm's way far faster
than I thought it would. The PBOC may have to be on a loose  / tight policy treadmill to
wring out its badly overextended real estate markets for years to come. This imperative may
provide attractive capital markets trades both long and short over the next several years.

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