Emerging markets: shorting China

It will not have escaped people’s notice that shorting some indices last year would have been very lucrative. What about in 2009?

As a company we do some business with Hong Kong and Chinese clients. Recently we’ve been receiving letters in response to our invoices which read along the lines of:

“whether there is a possibility of a one-off discount for this year.. In view of the economic clouds and down cycle on the horizon our ..budgets for 2009 are very tight and in fact downsized – we would very much appreciate your kind and considerate courtesy in this matter.”

At the same time there is quite recent investor comment around about shorting China. For instance the Christmas edition of MoneyWeek suggests using the ‘Ultrashort FTSE/Xinhua 25 Proshares (US:FXP), an exchange traded fund that matches 200% of the inverse movement in the Chinese market.

However, looking at an indices chart of emerging markets  comparing the FXI (the long version of the FXP) and the Indian equivalent (the BSE30) and the Dow Jones index both China and India large caps have tracked down very closely (and at least 10% more than the DJI) at levels of 50% or so.

Admittedly China is not the worst emerging market performer of last year (Russia is down for example some 70%) but this does not appear to be a ‘new’ story (on a 5 year view these indexes are down some 150% from the heights they reached at the end of 2007) so one suspects that shorting China at this point could be a risky business. 

In ‘short’, this boat has sailed.

Posted under index trackers, investment strategies

This post was written by mike on February 1, 2009

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