Cash a Better Investment Than Chinese Equities Now

11/13/2017 4:14 pm EST

Focus: MARKETS

Landon Whaley

Editor, Focus Market Trader

While the Fundamental Gravity is bearish, there is no question that FXI’s Quantitative Gravity is bullish right now. I don’t trade markets where the Fundamental and Quantitative Gravities aren’t aligned, suggests Landon Whaley of Focus Market Trader.

The iShares China Large Cap ETF (FXI) gained 1.8% in the week ending November 10, 2017, pushing its year to date gain to 35.8%.

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Last week, in a letter published on the PBOC’s website, central bank governor Zhou Xiaochuan discussed the risks that building below the surface while the global economy is enjoying a regime of overall health. Zhou described the risks that are gaining momentum as “hidden, complex, sudden, contagious and hazardous…” He went on to say that China should increase market regulation because “high leverage is the ultimate origin of macro financial vulnerability.”

These comments are the last in a long line touting the need for “tighter financial market regulation.” Clearly the PBOC is committed to reducing the excessive borrowing that has occurred in China’s financial and real estate markets.

I’ve said it once, I’ll say it again, less leverage (liquidity) in the system is bearish for Chinese equities and FXI.

While the Fundamental Gravity is bearish, there is no question that FXI’s Quantitative Gravity is bullish right now. I don’t trade markets where the Fundamental and Quantitative Gravities aren’t aligned. Price action can swing violently, in the opposite direction, once the crowd figures out the Fundamental side of the equation.

Trade idea

I would avoid this market entirely for the time being. When there are conflicting signals from the Gravitational Framework, the sidelines are the best place to remain.

Remember, there is nothing wrong with actively choosing “cash” as an investment. Right now, cash is a better investment than Chinese equities.

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