Stay Out of China (and thus H.K.) Until Wall Street's Mess Settles

A number of Enzio's Clock subscribers have been asking whether they should load up on the Chinese market? We think not just yet. The sub-prime mess (sub. req.), sadly, is morphing from a midget to a monster, and that is hitting more and more banks. Besides, Fed Funds are being reduced for a simple reason: the U.S. growth outlook is worsening. Finally, not all "things" are so "different" this time.

1. Why stay out for now?

One recently submitted question: "Is going back into the Hong Kong market very risky?"

My response is that it is risky. Having said this, I am going for the Alibaba IPO with the very simple view that the stock will rocket early on, so why not join the party? However, for the rest of CEA's two pilot funds, I have asked my bank to skim profits and reduce holdings to the original amounts that I invested.

The risks to the U.S. market are far worse, and my concern is that psychological de-coupling is wishful thinking: if Wall Street tanks, the rest of the world will follow. Indeed, this is what happened last week: Wall Street fell on Thursday and sure enough, we "de-coupled" Asians fell on Friday. Auf Wiedersehen, de-coupling aunts and uncles!

I don't want to go on and on about why I feel that Wall Street is at risk: you know my views. Indeed, this Friday's banking concerns vindicated my views, namely that The Economic Time™ keeps worsening in America, and that this is one reason why markets are concerned this will exacerbate the sub-prime mess.

Concerning Hong Kong, we all know that when markets want to go up, all the bad news is irrelevant, and if the market wants to go down, all the good news is irrelevant.

This time, I guess that all bad news is relevant: Wall Street's sub-prime worries, coupled with PM Wen saying that he wants the "through train" (announced 20th August) to Hong Kong to take a rest will take their toll here (H.K.) and elsewhere in Asia.

The other question submitted was "When do you advise to load up on Hong Kong and China?"

My guess, so often stated that I will not regurgitate, is that China represents a huge buying opportunity, as we all know. In simple talk: we in Hong Kong are sitting at the doorstep of China's first industrial revolution.

So, once Wall Street has cracked enough, and thus has dragged reluctant Asia down, load up on Asia. We will provide more structural research on crashes in the near future.

2. How to Save Money Off This Idea

1. Always talk with your financial adviser first!
2. Stay out of China (and thus H.K.) until the Wall Street mess settles.

Comments

[omooc:]

Your logic escapes me. So Wall Street is risky. Why does it follow that, as a result, HK or Shanghai becomes risky. Unless one resides in HK, one would not be permitted to buy Alibaba, to my knowledge. omooc

2007 Nov 04 09:37 PM

[Jeff Shek:]

Enzio von Pfeil,

DavidLi, makes a serious point. Indeed, if one was entirely scared of US markets, it would make most sense to diversify; as opposed to pulling out of diverse markets. Estimates of China's GDP Growth accounted for more Global GDP Growth, than any country this year (including United States). In fact, one would argue quite quite the opposite of what you have suggested. If US Markets are as shaky as you deem, one would enter European and Asia markets. Unfortunately, European banks were also holding some of the obligations that were affected United States financial corporations. That would indicate it would be smarter to enter Asia as ways to avoid significant risk.

I don't argue or contend that US markets are incredibly shaky. The fall, even post another rate cut, indicates that all is not well. The leaving of O'Neil and now, Prince, state that there is more than enough blame to go around - more or less showing that significant concern is still on everyone's minds, especially the United States.

Granted, the HK Seng did drop 5% today, an astronomical sum, but it is one of the few indices that has the possibility of moving back that in days.

2007 Nov 05 06:53 AM

[savant:]

Are you kidding me? You wrote a piece that appeared just hours ago on Seeking Alpha that recommended buying China on the dips.

Now you are saying not to buy at all until the market has bottomed. And as if anyone knows when a market bottoms.

Absolutely worthless advice. I am seriously thinking of starting my own web page to share my own financial views.

Does Seeking Alpha vet writers whatsoever? This is quite remarkable and pathetic.

2007 Nov 05 11:05 PM

[Jason Hamlin:]

Harsh comments from readers that clearly don't understand the concept of a "global economy." I'm not sure if DavidLi's point is serious or not, but I am certain it is dead wrong, as is the view of Mr. Shek. Put very simply, if the U.S. market tanks, China will be dragged down with it. I would actually expect China to fall even faster due to the rate of its recent climb and bubble-like overbought status. You can simply look back at the last few times the U.S. markets have had really bad days and see what happened to China into their open the next day.

Diversify into China? Wrong. If you want to diversify when the U.S. market falls, you need to have UltraShort ETFs (especially the housing and financial sectors) and other contrarian investments such as commodities (gold, silver, energy). Despite the critique of commenters that disagree with von Pfeil, my money says he is spot on. Nice work sir.

2007 Nov 08 03:56 AM

[Jason Hamlin:]

Harsh comments from readers that clearly don't understand the concept of a "global economy." I'm not sure if DavidLi's point is serious or not, but I am certain it is dead wrong, as is the view of Mr. Shek. Put very simply, if the U.S. market tanks, China will be dragged down with it. I would actually expect China to fall even faster due to the rate of its recent climb and bubble-like overbought status. You can simply look back at the last few times the U.S. markets have had really bad days and see what happened to China into their open the next day.

Diversify into China? Wrong. If you want to diversify when the U.S. market falls, you need to have UltraShort ETFs (especially the housing and financial sectors) and other contrarian investments such as commodities (gold, silver, energy). Despite the critique of commenters that disagree with von Pfeil, my money says he is spot on. Nice work sir.

2007 Nov 08 03:56 AM