While the S&P 500 is making highs, the Chinese market is beginning to dip.
The big news is the firing of Bo Xilai, the populist leader. Bo was the head of Chongqing Municipality. Bo successfully led the city of about 30 million people to rapid development, narrowed the gap between rich and poor, and hit organized crime hard. The firing of Bo highlights challenges facing China’s political system and potential risks to investors in China.
Astute investors may consider selling China and buying Taiwan. Sophisticated investors can consider short selling China and hedging it with Taiwan.
To assist investors in their decision, the following are excerpts from my ZYX Emerging Markets ETF Alert on China and Taiwan:
China has three big transitions ahead. First is the transition from primarily an export-oriented economy to more domestic consumption. Second is transition to a younger generation of leadership. There are no open and free elections in China, therefore, how the transition takes place becomes critical. China does not have a long history of smooth leadership transitions.
Wen Jiabao, Prime Minister of China, is stepping down. China is ruled by a nine-member Politburo of the Communist Party. Seven members of the Politburo, including President Hu Jintao, are scheduled to step down.
Third, the big government stimulus money is about to run out. Most of that money has gone into infrastructure development. As the stimulus money disappears from the economy, infrastructure development will slow considerably.
Investors in China need to be mindful that the long held one-child policy is about to come home to roost…Read more at MarketWatch