Global Investment Strategies

Global Investment Strategies
Global Investment Down, Your Portfolio Up

My top play for this week is a double-down bet against the Chinese market (which tanked by over 7% in Shanghai and 4.25% in Hong Kong Monday). The Chinese New Year holiday is coming up next week, which usually leads to lower trading in Singapore, Hong Kong, and of course the mainland exchanges.

What volume these trading floors do draw will likely be to the downside, as reports are surfacing that much of Chinese companies' earnings growth over the past 24 months has come from investments, not from product revenue streams. With market contraction will thus come earnings contraction, feeding a downward spiral that will probably take the better part of 2008 to sort out.

Even though bond futures are pricing in a Fed rate cut of at least 25 more basis points, forecasting a drop all the way to 2.32% for September, the best laid plans of investment houses and individuals around the world have been torn to shreds in the past few months, feeding more volatility and requiring more than easy money to revive widespread bullishness.

So use AMEX:FXP, the ProShares UltraShort FTSE/Xinhua China 25, which will log double the opposite of 25 China-based stocks that trade in Hong Kong (NYSE:FXI). Therefore, every time the iShares FTSE/Xinhua 25 Index drops by 5%, you bank 10%. The CurrencyShares Japanese Yen Trust (AMEX:FXY) can also be your retreat as the VIX volatility index rocks and rolls, though I recommend only a defensive allocation of 5-10% for this currency play.

It's a good way to benefit from a bad situation from east to west.

Global Investment Strategies