Recent interventions into China’s domestic markets by the country’s central bank surprised investors all over the world, but they shouldn’t have. Oddly, the consensus was that the communist dictatorship, whose entire form of government is based on an entrenched phobia of capitalism, wants to allow the free market to operate without much interference from party bosses. In fact, China’s political bosses are only now showing their true colors as they intervene in nearly every aspect of domestic securities, industrial, retail, consumer goods, and banking markets. Unfortunately, the world’s most populous totalitarian state is potentially on a long-term, downward economic slide, much like the economic free-fall that eventually toppled the former Soviet Union.
History lessons are one thing, but investing opportunities for freedom loving capitalists are quite another. As the world’s oldest dictatorship continues to fray at the edges and over-manipulate its economy, free people in developed nations, whose governments don’t yet control every aspect of the economy, can profit from the communist Chinese government’s interventions. How? Here are just a few of the many ways for investors and traders to profit from the poor decisions of China’s aging, anti-capitalist leaders.
Follow the News
Communist dictators often lack the foresight to keep their plans confidential. That’s good news for traders and speculators outside the People’s Republic of China (PRC, as opposed to the Republic of China, an independent, democratic nation also located in Asia), who only need to watch international news to learn how to profit from domestic market manipulation by party bosses.
For example, in recent weeks, PRC government officials have done all of the following, any one of which would be nearly unheard of in a free nation: demanded that domestic companies cut exposure of commodities in foreign markets, announced that government agencies will sell various metals held in national reserve depositories, banned and censored local brokerage companies from publishing financial targets, taken control of citizens’ computer activity to eliminate searches for information about using cryptocurrency, announced its intention to put a ceiling on the price of coal, and ordered PRC-based banks to buy more foreign currency.
Short the Yuan?
The above short-list ofmeasures by government agencies in PRC could portend a major downturn in the nation’s economy, as well as its currency, the yuan. Anyone who prefers the fast-moving pace of price action trading should keep a sharp eye on the yuan as China’s economic problems deepen and its government’s strong-arm tactics at home become bolder.Because a strong local currency can often mean bad things for a nation’s balance of trade numbers, China’s leaders are possibly being at least a bit intentional in their actions to order banks to purchase more foreign currency. That action is a recipe for devaluing the yuan, which had been at a three-year high and was threatening to decimate exports. Watch for purposeful and accidental circumstances that could lead to a widespread devaluation of the Chinese yuan.
Use CDFs to Short China-Based Companies
One of the problems faced by investors who want to put their capital to work in China is a lack of transparency. Because all domestic corporations exist at the behest of the communist party, it’s nearly impossible to know whether financial statements are authentic or wholly fabricated. Traders who predict either the downward slide of the yuan, or the continued fall of the MSCI, the nation’s main securities index could use contracts-for-difference to make a profit on those circumstances.
When you buy a CFD, there’s no need to own the underlying security. In fact, all you’re doing is betting on the change in price, either up or down. CFDs are an effective way to go long or short on any number of securities.
The Home of the COVID Virus
It’s impossible to say whether China’s current economic troubles stem mostly from its origination of the COVID viral pandemic, its government’s dictatorial intervention in nearly all domestic markets, or the questionable decisions on how to operate a profitable local economy in a global marketplace. But, the COVID factor is a real part of the equation. How can traders make a profit on a national economy that seems to be inching toward a major financial crisis, if not bankruptcy?
This would be the third economic meltdown of the Chinese market since 2015, and might be the worst. Having seen what the virus did to the entire world, who can say that then next wave of viral decimation won’t originate from the same source, due to lack of scientific oversight and proper safety precautions? Going long on any Chinese equity could spell disaster for investors. Going short could mean the opposite.