I received the following question from a reader today that I thought I would pose to the audience:
[I]f you were happen to be a Chinese national with a hoard of Cash RMB and you were speculating that China is about to face a hard landing, What would you do with your money? To make it simple, lets say stocks are out of the question and you have limited foreign language skills.
It appears from the question (limited foreign language skills) that international investments are off the table, so we are limited in Chinese domestic assets.
Here are my thoughts:
- Hold onto the cash to take advantage of expected fire sales.
- I am guessing that if stocks are out of the question then options are as well. If not, a variety of option strategies (long puts, short out of the money calls, etc) would be the best “active” strategy.
- Commodities are out. China being one of the largest consumers of a wide variety of commodities, a hard landing will do nothing for this asset class
- Real estate is definitely out (the crash in real estate is likely going to be a cause of the hard landing)
- Bonds are out. Corporate spreads would expand as the economy crumbles and the Chinese government debt situation is too murky. Unlike the US, where a weakening economy led to a flight to safety into US government debt, leading to a paradoxical decline in yields, I don’t think China would experience this.
How would you answer? Do you have any questions for the audience?
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Talk to Frank about this question
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