Should China Crash the FXP is your Bet
China crash? Why not. If that’s the case then ProShares UltraShort FTSE/Xinhua China 25
(NYSE:FXP) is your friend.
BusinessWeek wrote this week that investors could be going down to Chinatown in their piece titled Preparing for the (Possible) China Crash.
Moral of the story: While a big slowdown would hurt Chinese the most, collateral damage would still be huge.
Over the past 12 months ProShares UltraShort FTSE China 25 (FXP) shares have traded between $24.60 and its 52-week high of $41.13. The FXP is near the bottom of its range, now 14.79% from its 52-week low closing Friday at $28.87.
WHY THE FXP?
BusinessWeek | Dexter Roberts
Moody’s Investors Service (MCO), the credit ratings agency, says China has underestimated by half a trillion dollars the exposure of state-owned banks’ loan portfolios to local governments. Despite five interest rate hikes since last October, inflation is now running at 6.4 percent, the fastest since 2008. Second-quarter gross domestic product grew at 9.5 percent, its slowest pace in almost two years.
No one is writing off China. An April Bloomberg survey of economists estimated the economy would grow more than 9 percent this year. The government is flush with cash and ready to prop up key banks and companies in case things get dicey. Yet bearish investors, such as James Chanos of Kynikos Associates, question whether China can beat inflation and stop over-investing in real estate projects and factories without triggering a hard landing. “A lot of people in the broader market are now asking these questions that they weren’t asking before,” says Patrick Chovanec, a business professor at Tsinghua University. “Before, the China story was so powerful that it overcame all doubt. Now there has been a big shift in sentiment.”
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