How To Play A China Hard Landing

Includes: BOM, BOS, CHINA, SMN
by: HiddenLevers

By Sifiso Takirambudde

There are severe challenges on the horizon for the Chinese economy. We all know of the currency woes based on the back and forth between Chinese officials and American politicians. Then there are the shady business dealings of Chinese firms such as Sino Forest.

However, the catalyst of this hard landing will be with housing market. Property prices have dropped for three consecutive months and are starting to picking accelerate to the downside. According to the WSJ the Chinese are drowning in unproductive investments financed by credit – and not credit like mid 2000s USA… more like 1920s USA. The landscape is littered with so many empty and ominous luxury apartment buildings, that they’ve become an institution - White Elephants. It seems like the Chinese are doomed to a hard landing simply because they overestimated their economic prowess.

Here is a quick Econ 101 review. China is the world’s factory and they consume basic materials like no other nation on this earth. Should we see a hard landing in 2012, we could see depressed commodity prices across the board especially in the metals. Copper, Silver and Aluminum would be especially hard hit. Copper is the bellwether of any industrial economy. It just so happens that the Chinese dictate the price on the open market.

Using HiddenLevers, it was easy to screen for good plays for a China hard landing. I can use the macro trend screener to find plays inversely correlated to Copper or other base metals, so when Copper prices head south, my plays head north. I can also use the Scenario screener, to see all the plays that should do well if the China hard landing comes to fruition.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.