China Bubble is About to Burst -- Short This ETF
Michael Shulman, December 4, 2009
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One of the greatest shorting opportunities of 2010 will occur when the China bubble bursts. Sure, China appears to be growing at a lightening pace, but it is sustaining that growth through reckless lending practices by state banks and government stimulus. And despite the fact that the world is in a recession and the country already has a problem with overcapacity, especially in heavy industries that are dominated by state-owned enterprises, China continues to ramp up production. Over time, the banks will rein in lending, loans will default, and if the Chinese start to dump products abroad even more aggressively than they do now, a trade war will begin to brew.
All of this is bad news for Chinese stocks. But rather than betting on individual Chinese companies, the best way to play this is to buy put options on the PowerShares Golden Dragon Halter USX China Portfolio ETF (PGJ). This ETF tracks the Halter USX China Index, which is comprised of U.S.-traded stocks of companies that conduct a majority of their business in China.
According to the charts, China is not ready to blow yet -- but it will blow. And since the market will continue to push many things up through year-end, you have some time to act on this. But when the China bubble does burst, you'll make some serious money.
Next: 10 Reasons to Use ETFs When Trading Options
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