Investors are fleeing Chinese stocks like rats leaving a sinking ship. China’s population is aging and even shrinking at bit. Their real estate sector is in trouble. Their public and private debt burdens are huge and growing. And the US and its allies have finally woken up to the fact that China represents a significant economic, military, and strategic risk for Western democracies. Thus, the US and others are cutting China off from high tech computer technology as well as investment capital. However, there are always options trading opportunities as Chinese stocks plunge.
Why Are FXI Shares Falling?
Foreign funds that invest in Chinese stocks have been selling at a pace not seen in seven years. Outflows in the range of $200 million a day have gone on now for 9 days. The sentiment among these big investors is that China’s economy is in bad shape and getting worse. And, they appear to believe, that the Chinese government does not have the wherewithal or will to get the economy back on track. Specifically, investors expected the recent politburo meeting to result in policy changes that would help the economy but such changes did not emerge from the meeting. That, and the dire condition of the property sector have caused the continued selloff.
Investors See the End of an Era of Chinese Growth
Something that was always apparent was the China was not going to continue its most rapid rates of growth forever. They have reached a point where there is no one else in the world to sell to. Other nations have also reached the point where they want some of their old manufacturing capacity back home both for economic and security reasons. China’s communist party leadership refuses to move away from controlling the economy. This was going to happen sooner or later that China’s growth would slow down. What has also happened is that China’s debt burden has became dangerous at the same time that its population has topped out. Meanwhile the unemployment rate of younger people is running around 25%.
Is Trading FXI a Bad Idea?
At Top Gun Options we have made many successful trades of the FXI ETF. The beauty of trading options is that we can profit no matter if a market is going up or down. Unlike us, big investment funds are like oil tankers out at sea or two-mile-long freight trains chugging across Nebraska. Neither can be stopped, or turned around, in a hurry. At the same time we can pivot on a dime and make profits no matter how Chinese stocks are doing. Something to remember is that China is a big country with lots of people, industrial capacity, and the ability to rectify its economic situation. The fact that their economy has slowed down does not mean that it has collapsed. At some point they will put their house in order and stocks will rise again. Then, at Top Gun Options, we will pivot again and continue making a profit on our FXI trades.
Poor Information Can Make Trading Difficult
Back before Nixon visited China and they started to open up, nobody knew anything about what was going on there. It got a lot better over the years but now that the Communist Party is feeling pressure to control with a heavier hand, they are shutting down the kinds of information sources that investors and traders need to make good decisions. That is one fly in the ointment of investing in and trading Chinese stocks through an ETF like FXI. It is also a good reason to trade with a dedicated squadron like at Top Gun Options when trading FXI or any Chinese stocks.
Originally published at https://topgunoptions.com on August 17, 2023.
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