When China sneezes, the rest of the emerging world catches cold. So what happens if China's market gets seriously ill?
That's what David Riedel of Riedel Research warns is coming in January.
Specifically, he’s worried that Beijing will get very aggressive in its fight to curtail inflation.
“And China doesn’t have a lot of fine arrows in their quiver so they must use a blunt instrument to beat it down,” he says in an interview on CNBC’s Fast Money.
Inflation is hardly a new economic issue facing Beijing, so why the sudden and sharp move to curtail it in January?
Riedel says it has everything to do with the consumer’s perception of inflation becoming a serious issues.
”We do a monthly survey of Chinese consumer confidence,” he explains, “and concern about inflation in China is at its highest levels since the beginning of ’08. And overall consumer sentiment is lower today than it was in December ’08 (also) because of inflation concerns.
Here’s more of Riedel's data.
| Chinese Consumer Confidence Falls Off A Cliff | Cell 2 |
| Expectations Index | -7.05% |
| Personal Finance: Current | -9.6% |
| Personal Finance Expected | -7.75% |
| Business Conditions: 1 Yr | -6.82% |
| Business Conditions: 5 Yrs | -6.52% |
| Durable Buying Conditions | -0.089% |
| (Percentage Change From Previous Month) | |
| Source: Riedel Research |
As a result he thinks Chinese equities are facing some serious challenges. “I’d be careful of the energy matrix as well as the financials.
And if you own any of the China ETFs you have greater exposure to this issue than you may think.”
What's the trade?
”I’d short FXI and China’s banks,” he counsels. However it's worth noting that Riedel isn’t totally bearish on China. He doesn’t expect the Chinese economy to jump the rails entirely as Beijing fights inflation. “Hold onto your commodity exposure,” he adds.
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Trader disclosure: On December 3rd, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour owns (AAPL), (BAC), (F), (VIP); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Finerman owns (AAPL); Finerman’s firm owns (ARM); Finerman owns (BAC); Finerman’s firm owns (BKS); Finerman’s firm owns (CMI); Finerman & Finerman’s Firm owns (JPM); Finerman & Finerman’s Firm owns (MSFT); Finerman’s firm is short (IJR); Finerman’s firm is short (MDY); Finerman’s firm is short (SPY); Finerman’s firm is short (IWM); Finerman’s firm owns S&P 500 and Russell 2000 puts; Finerman's firm owns (ARO); Finerman's firm owns (TJX)
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