As the Chinese economy slows many traders are avoiding Chinese stocks. But, according to The Street, there are attractive stocks in China’s superheated property market that might be worth a look.
There are at least two nations within China – the thriving east coast, and the vast hinterland, much of it still rural and populated by subsistence farmers. And nowhere is China’s two-speed economy more in evidence than in its property prices. Investors can use that knowledge to make informed decisions on how to play Chinese property stocks, many of which are listed in the U.S. via ADRs.
U.S. investors are at an advantage since they can short the ADRs of the bad bets, whereas shorting in China is difficult, and only institutions can get access to the Shanghai and Shenzhen exchanges. Since some of the ADRs are thinly traded, exiting a position is potentially difficult, though. Stocks can also be shorted in Hong Kong as an alternate location for trading. So I will highlight some of the tickers to target either on the long or short side.
Given the uncertain nature of the Chinese stock market, Chinese investors generally prefer property as an investment. The issue for American investors is how to cash in on trading Chinese property stocks.
Read the article. The Street suggests Chinese stocks that trade in the USA as ADRs and in Hong Kong which is accessible to foreign traders.
American Depositary Receipts
For most Americans the best way to trade foreign stocks is with American Depositary Receipts, ADRs. Investing Answers writes about the American Depositary Receipt.
An American Depositary Receipt (ADR) is a certificate that represents shares of a foreign stock owned and issued by a U.S. bank. The foreign shares are usually held in custody overseas, but the certificates trade in the U.S. Through this system, a large number of foreign-based companies are actively traded on one of the three major U.S. equity markets (the NYSE, AMEX or Nasdaq).
Level I ADRs are subject to the same reporting requirements as US stocks traded on US markets. Thus traders can be assured of a reasonable degree of transparency. And you don’t need to know a foreign language in order to trade these shares.
Can You Trust the Chinese Economy?
Is the rising Chinese real estate market a sign of a thriving economy or is it where people are parking their money as the economy slows to a crawl? The latter is probably the case. A banking crisis may end up killing the Chinese economic miracle. The Guardian writes about China’s credit binge.
China’s huge credit binge has increased the risk of a banking crisis in the world’s second biggest economy in the next three years, according to global financial watchdog.
An early warning of financial overheating – the gap between credit and GDP – hit 30.1 in China in the first quarter of this year, a report from the Bank for International Settlements (BIS) said on Sunday.
Any level above 10 suggests that a crisis will occur “in any of the three years ahead”, the BIS said. China’s indicator is way above the second highest level of 12.1 for Canada and the highest of the countries assessed by the BIS.
Lending in China doubled in August due to high demand for mortgages. What happens when the economy falters even more and housing values drop? A whole host of Chinese will be upside down on their mortgages and stocks the real estate sector will plummet. Trading Chinese property stocks will be matter of well-timed shorts.