A China Play To Launch A Strong Q4

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Since the Fed’s first rate cut back on Aug. 17, Hong Kong’s stock market has been going ballistic, breaking 27,000 for the first time last week. "H" shares — those of mainland Chinese companies listed in Hong Kong — have done even better, substantially outperforming local Hong Kong companies. And here’s why Hong Kong will continue to soar ahead and be a top performer during the Q4 rally.

Advertisement.

First, the Hong Kong stock market is benefiting from the general rush to emerging-market stocks. The bet is that the Fed’s rate cut, as well as easier policy stances at the European Central Bank and the Bank of England, will boost already fast-growing, emerging-market economies. Emerging-market economies have been posting earnings growth even amid rising U.S. interest rates, so the Fed rate cut only turbo-charges this already fast-running engine of economic growth.

Second, the Hong Kong dollar’s peg to the U.S. dollar means that Hong Kong’s interest rates mirror that of the Federal Reserve. That means equity investors in Hong Kong get the benefit of a rate cut, while Hong Kong itself is enjoying brisk economic growth. The Hong Kong index is also heavily weighted towards interest rate-sensitive stocks, including financials, utilities and property — stocks that benefit disproportionately from an interest rate cut. And unlike elsewhere on the globe, Hong Kong banks have shown little if any sign of the effects of a credit crunch.

Finally, China-related markets — including Hong Kong — are all about liquidity. Stock markets in Hong Kong and Asia go giddy at the thought of the Chinese government investing some of its $1.4 trillion foreign exchange reserves abroad, and liberalizing the estimated $2 trillion in Chinese individual bank deposits. There is little doubt that any liberalization of Chinese mainlanders’ ability to invest abroad will result in a great wall of money ending up in Hong Kong.

Advertisement.

That process has started. The China Investment Co. (CIC), the new fund set up to manage some of the country’s $1.4 trillion in foreign exchange reserves, is starting operations just this week. In addition, the Chinese government has introduced a scheme under which domestic institutional investors could invest in the overseas capital markets. Despite fits and starts, gradual liberalization seems inevitable. And Hong Kong is an unusually attractive destination for mainland money. Shanghai’s composite index may have 50 times trailing earnings, but Hong Kong’s price/earnings ratio of 17 is quite reasonable. The market won’t be in bubble territory for quite a while.

Exclusive  George Gilder Discusses Blockchain, the Graphene Age and More in Interview on NYSE Floor

So buy the Hong Kong ETF (EWH) today at market and place your stop at $17.80. The market has had a big run up recently, so the market may pull back in the short term. But we’re betting that it will end the quarter much higher than it is today. If you are willing to accept additional risk for a chance at heightened returns, you may want to buy the Hong Kong ETF’s $20 December call options, EWHLD.X.

PORTFOLIO UPDATE

Otherwise, the Global Bull Market Alert portfolio is performing strongly across the board. All but one of our positions is profitable, and we have 50%-plus gains in two of our stocks — POSCO (up 87.47%) and Potash (up 59.03%) — and three of our options — CEDC (81.82%), Dryships (83.87%) and BHP Billiton (208.82%). I feel strongly enough about all of these positions that I am going to recommend that we hold off on taking profits on these for now.

Advertisement.
share on:

Like This Article?
Now Get Our FREE Special Report:
Alternative Investing: Investing in Timber

Stock Investor editor Paul Dykewicz reveals why investing in timber may be one of the best long-term portfolio strategies you'll find today.

Get Access to the Report, 100% FREE


img
share on:

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle
LEARN MORE HERE

DayTradeSPY

DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops
LEARN MORE HERE