I've had mostly short positions this year, but I've finally decided to take a long position in addition to my gold holdings. I have opened a long position in FXI because I am bullish on the long-term prospects of the Chinese economy.
The macroeconomic rationale is even stronger than the opportunity posed by FXI's price haircut. China is in a position of strength relative to the United States. Beijing's enormous holdings of U.S. Treasuries gives the Chinese political leverage over Washington, and I believe they have been quietly using it. Treasury Secretary Henry Paulson knows this, which is why he is so keen to stay on the Middle Kingdom's good side. A long position on the Chinese stock market is a kind of carry trade against the dollar given the interest payments the U.S. must make on China's Treasuries.
Most importantly, China's internal market and trade relations with its neighbors have matured to the point where it can afford an export slowdown without worrying too much about whether its economy will suffer. The combination of China's newfound strength and the historic drop in the FTSE/Xinhua China 25 index is too attractive for me to ignore.
Nota Bene: Anthony J. Alfidi is long FXI and is writing out-of-the-money covered calls against this position for additional yield.
In simple terms, FXI is on sale. Today's closing price of 39.43 is almost half of what the ETF was worth a year ago. Bottoms are hard to call, but I'm not going to call one. Too many investors are fearful of further declines, so it's time for yours truly to get greedy.
The macroeconomic rationale is even stronger than the opportunity posed by FXI's price haircut. China is in a position of strength relative to the United States. Beijing's enormous holdings of U.S. Treasuries gives the Chinese political leverage over Washington, and I believe they have been quietly using it. Treasury Secretary Henry Paulson knows this, which is why he is so keen to stay on the Middle Kingdom's good side. A long position on the Chinese stock market is a kind of carry trade against the dollar given the interest payments the U.S. must make on China's Treasuries.
Most importantly, China's internal market and trade relations with its neighbors have matured to the point where it can afford an export slowdown without worrying too much about whether its economy will suffer. The combination of China's newfound strength and the historic drop in the FTSE/Xinhua China 25 index is too attractive for me to ignore.
Nota Bene: Anthony J. Alfidi is long FXI and is writing out-of-the-money covered calls against this position for additional yield.
