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

Includes: CAF, CHN, EWH, FXI, PGJ
by: Enzio von Pfeil

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.