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Trading the Globe: 2 China Rate Hike Plays

For the third time since mid-October China announced an increase in interest rates Tuesday, in an effort to curb inflation.

The move is widely considered a sign that Beijing will do whatever is necessary to keep a lid on food prices. In China poor families can spend up to half their incomes on food.

Also Beijing is keenly aware that the rapid increase in the price has food has been a trigger for violence in other parts of the world.

However, the move triggered worry that in its quest to temper food prices, Beijing could stymie growth.

According to China expert David Riedel of Riedel Research although inflation is challenging for China’s poor it may actually benefit China’s growing middle class by generating higher wages.

He says play the trend on the side of the Chinese consumer. “Consumers are still going to have money to spend and they're going to spend it, especially if they're worried about inflation accelerating.

In other words Chinese consumers will buy things now, on expectations that prices will go up later.

How does an American investor play it?

Riedel tells the desk he’s a buyer of US listed Chinese companies that provide exposure to consumer durables such as Sohu and Lihua.

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