Reduce Your Chinese Holdings Before the National Party Congress Begins

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

Yesterday we suggested that China's market may be ripe for a crash-ette. Maybe this is what will get Wall Street to fall (again)?

1. How much has the Chinese market fallen once the NPC has adjourned?

In yesterday's piece we analyzed the Shanghai Composite from its peak around the time of the National Party Congress until a big trough was reached. We concluded that on average, the market fell by about 22%, give or take about six percentage points on each side.

Now, we want to find out what happened after the NPC actually adjourned. In more recent history, the NPC adjourned on 18th September 1997, and on 15th November 2002. So what happened to the market until the trough was reached?

  • from 18th -29th September, 1997, it fell by 8%, and
  • from 15th November, 2002 - 2nd January, 2003, it fell by 10%

Thus, our "pattern prediction" suggests a fall of about 9% after the NPC adjourns on Sunday, 21st.

2. How much has the market fallen during the week of the NPC?

But what does the market do DURING the NPC? The Chinese market fell as follows:

  • 12th - 18th September 1997: -3%
  • 8th - 15th November 2002: -4%

3. So what has the overall market loss been from the start of the NPC until the next big trough?

Thus, the overall loss from head to toe, from the start of the NPC until the next big market trough, has been the sum of how the market (mis-)behaved during the NPC and thereafter:

  • 1997: -11%
  • 2002: -14%

4. How to preserve your profits off this

Simple: cash in next Monday when the NPC starts, ahead of the lemmings, and then wait. We will keep tracking this and make our suggestions.