2013-09-29

Fear Spike on the Weekend; Time to Invest in Chinese Stocks?

I did not and still do not expect a government shutdown. Republicans and Democrats both want to spend more money; they disagree about Obamacare. However, even if there's no shutdown, they could create enough uncertainty to rattle financial markets on Monday. If there is a shutdown, of course, things may get wild for a bit. Taking a broader view, in Greece the government said Golden Dawn is a criminal organization and arrested its leaders. In the U.S. there is the budget impasse, and in Italy, politics are also creating uncertainty.

Government Shutdown Imminent; "Obamacare-Delay" Continuing Resolution Vote
Italy in Crisis as Center-Right Ministers Resign

This is very short-term drama, although there are long-run effects. History suggests that if there is a government shut down, the long-term effect will be smaller budget deficits. Italy is more unstable because the debt crisis already began.

In contrast, turn to Asia where China is opening the Shanghai free trade zone (FTZ). The other big financial story is the opening of the IPO market; China has kept a lid on IPOs over the past few years. I still expect China will face a tough situation, probably a crisis, and the yuan will depreciate, but long-term policies are clearly moving in the right direction. This blog was named Investing In Chinese Stocks because I planned to look at non-U.S. listed Chinese stocks, but the market hasn't been terribly good and there's plenty else to write about. A look at the charts shows some Chinese shares are quite depressed relative to the rest of the globe's markets and with major reforms coming that directly impact the financial sector, the time has come to once again investigate.

I'm keeping a close eye on ADXY for a breakdown. In the short-run this could mean more pain for Chinese and emerging market shares.


To me, this chart shows euro bulls are way too optimistic. The euro has been moving higher, but the optimism visible in this chart is excessive. There is enough fuel there to take the euro back near the $1.30 level. You have to go back to spring 2011 to find this large a bullish position in the euro among speculators, back when many though the euro debt problems were being solved. Right before they exploded once again.

The same optimism appears in the gold futures market.

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