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3 Ways To Play China's Rate Decision

Jayson Derrick

The Chinese central bank said over the weekend that it would be open to changing its monetary policy in the coming months, Bloomberg reported.

China's central bank, the People's Bank of China, is unique from its international peers in the sense that it doesn't operate on a fixed schedule for policy rate announcements and speeches by notable leaders are quite rare. Nevertheless, the PBOC may "potentially be re-calibrated after the upcoming party transition," MK Tang, a senior China economist at Goldman Sachs in Hong Kong told Bloomberg.

"Understanding policy intention is not always an easy task in China though, given an absence of regular rate-setting meetings and limited explicit guidance from senior officials," Tang was quoted as saying in a research report. "It does not mean that information is lacking, but it requires a mosaic approach that involves watching and analyzing a broad spectrum of cues."

On Monday, shares of various U.S.-traded but China-based wealth managers saw notable gains on heavier than usual volume.

  • Jupai Holdings Ltd (ADR) (NYSE: JP) gained more than 13 percent and hit a new 52-week high of $22.04.
  • Noah Holdings Limited (ADR) (NYSE: NOAH) gained more than 5 percent and hit a new 52-week high of $37.54.
  • China Internet Nationwide Fncl Srvcs Inc (NASDAQ: CIFS) gained nearly 2 percent and by early afternoon traded nearly its average volume for an entire trading session.

Of particular note, not one of the three companies mentioned above has released any news that would justify a move higher. Investors and traders can therefore reasonably assume that the move is indeed industry related.

Investors should also be cautioned that China-based stocks, particularly the lesser known names, are subject to extreme volatility. This was observed last week when LiNiu Technology Group (NASDAQ: LINU), a nano-cap China-based agricultural stock soared more than 100 percent in one day. Similar price surges were seen on Chinanet Online Holdings Inc (NASDAQ: CNET) and to a lesser extent Kandi Technologies Group Inc (NASDAQ: KNDI).

Momentum investors with an appetite for risk are likely hoping Monday's jump in Chinese wealth management companies will continue for several trading sessions as this is not an unusual outcome.

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