The Chinese won't flip their New Year's calender until early February, but when the fastest growing large economy in the world makes its transition from the Year of the Dragon to Year of the Snake, it's set to usher in a mix of traditional strengths and weaknesses, as well as high hopes that the battered Chinese stock market has turned the corner after a three-year slump.
Ahead of that day, the coldest market in the world has suddenly caught fire, with the Shanghai Composite coming off its best weekly gain in 14 months and heading for another. Even though that 5% pop has caught the attention of investors, it still leaves the Chinese market down more than 6% for the year, while the Shenzhen-A is down by nearly 9%.
This was the first topic of discussion at Minyanville's annual Festivus charity event. Barry Ritholtz, CEO of Fusion IQ, and Peter Prudden, managing member of Prudden & Co., were the first to sit down with Breakout to discuss the year ahead.
"We still have a couple problems with China" says Ritholtz, who's also editor of The Big Picture blog. "It's been in a relentless downtrend for a long time. The bigger reason, however, is the second-class status that we U.S. investors find ourselves in over there," he says highlighting a rule that forbids foreigners from buying A-shares on the mainland. '"You're relegated to second-class shares."
For investor Peter Prudden, the turn in China could be the start of something big. While admittedly unrelated to the benchmark index, Prudden writes in his Minyanville blog that the iShares FTSE China 25 (FXI) is a good way to play a Shanghai bounce if indeed the recent rally proves sustainable.
"I hope it lasts. With the leadership change, we saw Wall Street get rather bullish," he says, likening the early embrace by investors to "trying to catch a knife."
Prudden prefers ETFs and is currently monitoring the interaction between the Chinese stocks and copper, while Ritholtz thinks the way to play it is through U.S. multinationals like Apple (AAPL), Ford (F) or Kraft Foods (KRFT) that sell into China.
For more information on Minyanville's Festivus charity event benefiting The Ruby Peck Foundation please click here.
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