Wednesday

China, Dow Jones, The Inflationist Challenge 2009

Case Study: Making Money on China H-Shares

We took another long DJIA position overnight at 7980 after our previous long position got stopped out at 8080. Our stop is at 7800. Also opened a small long position on China H-shares at 6700. Although China is still a long way above its recent lows (4980), our indicators suggest that markets are close to bottoming, at least for the time being. We expect a rally Wednesday, one day after the historic inauguration day. Worldwide alarms were set to watch Obama’s speech, a historic moment in world history, a sign of hope not just for America but for all. The market tanked by the most leading up to inauguration - greater than Roosevelt’s inauguration in the 30s. Shortly after Roosevelt’s inauguration, market recovered 75% of the fall. Assuming history to repeat itself, it would take the Dow back to 8900. This would fit with our sideway theory since it is lower than the recent high of 9080. Looking at the daily charts we appear to be standing by a cliff - which is possible so please have a stop. As we type China H-Share is slowly climbing up with 10 minutes of trading to go.

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What are China H-Shares?

China H shares are shares in Chinese companies issued in China under Chinese law. They are listed on the Hong Kong Stock Exchange and subject to stringent listing and disclosure requirements. The shares are denominated in Hong Kond Dollars and trade like any other shares listed on the Hong Kong Exchange.

There are now 91 companies offering H shares giving exposure to more than a dozen sectors including Telecommunications, Insurance, Real Estate, Airlines, Logistics as well as Infrastructure such as roads and electricity, Oil, Mining and Basic Materials such as steel, cement, aluminum and petrochemicals. They are required to meet the same standard of disclosure required of all companies listed on the SEHK.

The bad news is, we think the market will go sideways (instead of going up to a target for Dow at 10000). We may have seen the highest bounce for years to come for DJIA, but we feel that this crash presents a great opportunity to get into China. Disclosure and transparency is the major problem with China - so like Uncle Jim, we are buying China stocks listed in HK and Singapore. China H-shares is one way to do that.

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