Email of the day (1)
Comment of the Day

September 19 2012

Commentary by David Fuller

Email of the day (1)

On trading China:
"I'm waiting to go long on the Chinese market once I see some more strength. I wonder what market would be the best to use to take advantage of this trade? I asked IG index what market they recommend and they said the Hang Seng, as it is the most heavily traded in the underlying. Their name for this is the Hong Kong HS42. Would this be your preference to invest in China or should I look at another vehicle?"

David Fuller's view I assume you are talking about the A-Shares, which have been a serial laggard. I also assume that having asked IG, you are looking to establish a trade rather than an investment position.

The Hang Seng Index (HSI) (weekly & daily) obviously contains different constituents and has clearly outperformed the mainland A-Shares indices which are difficult for individuals to trade or invest in, although that is gradually changing.

HSI has moved higher with Wall Street and European share indices recently. I think it would go from a global underperformer to outperformer, once the A-Shares are appreciating as well. HSI is best purchased on a pullback and I would avoid the DFBs (daily funded bets, as I recall), because they will prove expensive for anything other than day trading, which I assume you are not considering.

Incidentally, people often play China from the long side by investing in things that China imports. Metals are an example and industrial mining shares should benefit as and when China's economy strengthens. You can see that the FTSE350 Mining Index surged two and a half weeks ago when China announced its latest fiscal stimulus. The BlackRock World Mining Trust is a good way to invest in the sector although it is expensive to trade via IG, as I mentioned on Monday. BRWM currently trades at a discount to NAV of 10.82%, according to Bloomberg. That would certainly narrow during the next mining boom which I think we could see over the next couple of years.

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