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Trading the Globe: China’s Rock and a Hard Place

Investor confidence was lifted after China denied a report it would review its euro zone bond holdings. China's central bank said a Financial Times report that Beijing was concerned about its euro zone sovereign bonds was untrue and gave reassuring words that Europe remains a key investment market for its foreign exchange reserves.

But how long will China keep buying bonds from Europe and even the US for that matter?

For that, we turned to David Riedel, founder and president of the Riedel Research Group.

Host Melissa Lee points out that China can't stop buying bonds without "shooting themselves in the foot." Riedel agrees that China has no choice but to continue to buy bonds to promote their own growth and stability.

"They've got a lot of sick children that they need to make sure they stay healthy," Riedel says. In other words, Europe is China's number one trading partner so they have a vested interest in helping the economies stay strong.

Turning attention to domestic growth in China, while the Street's outlook is varied, Riedel is bullish on China.

He says the fundamental economy is strong and notes that the OECD recently raised their expectations for growth to 11.1% for this year and 9.7% in 2011. Having recently visited China, he says things feel very optimistic. The bears on China haven’t spent enough time there, he says.


So how can you play China's economy?

Riedel likes Hong Kong property stocks right now. He says the metropolis is where Chinese investors put their money to avoid inflation, which is something Riedel is concerned about for the back end of the year. Affordable or mid-level housing in China is a good buy for the long-term, he says. Concrete materials companies that supply construction sites is also a good play, he says.

What’s the trade?

Tim Seymour prefers playing China via the consumer. "Look at Shanda or even Sina," he says. "Sina on a relative basis to Baidu looks good."


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Trader disclosure: On May 27, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Finerman’s Firm Owns (AAPL); Finerman Owns (BAC) & (BAC) Calls; Finerman’s Firm Owns (BAC); Finerman’s Firm Owns (GOOG); Finerman’s Firm Owns (GS) Calls; Finerman Owns (HPQ); Finerman’s Firm Owns (HPQ); Finerman Owns (JPM); Finerman’s Firm Owns (JPM); Finerman’s Firm Owns (PDE); Finerman’s Firm Owns (RIG) & (RIG) Calls; Finerman Owns (RIG) Calls; Terranova Owns (FTO), (STLD), (YHOO), (OIH), (APA), (AXP), (BTU), (SWN), (GLD); Seymour owns (AAPL), (BAC), (F), (GOOG), (RTP), (UNG), (VALE); Adami Owns (C), (GS), (INTC), (MSFT); Grasso Owns (C), (BAC), (JPM), (NDAQ), (BP), (LPX); Edwards owns (VXX); Levy Owns (GS) ; Levy Short (BP) Calls

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David Hilal
FBR Capital Markets is a Market Maker of (MSFT)




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