What a Smart Guy -Edward Strafaci—-Chinese Investments may be a sinkhole,look out below

Chinese Investments may be a sinkhole,look out below.

You knew that with what was going on around the world it was only a matter of time.China was more a momentum play than anything else ,much like the Internet or biotech fiascoes.If you made money ,and got out, fine otherwise you are buying into a bag fundamentally. There are incredible barriers to entry , little transparency, questionable official statistics and little more to go on save for the “billion Chinese story”. Get out soon and start doing your fundamental work because over the next decade its going to get harder to profit from fads.The SmartGuy

From the Wall Street Journal —“By TOM ORLIK

A hurried exit of capital from China is flashing a warning sign for investors in the world’s second-largest economy.

For the first time since the Asian financial crisis, China’s foreign exchange reserves shrank in the last three months of 2011. A $20.6 billion slip still leaves Beijing with a monumental $3.18 trillion in reserves—more than enough for a rainy day.

But a quarterly fall has not been seen since investors fled Asia in the 1998 financial crisis. It reflects a marked turn of sentiment on the Chinese economy.

A smaller trade surplus, combined with valuation adjustments resulting from a fall in the dollar value of the euro share of the reserves, explains part of the fall. But the most significant cause of the decline appears to be the flow of capital out of China.

Accounting for China’s reserves is murky, but estimates suggest as much as $100 billion of capital may have left China in November and December. The last time hot money exited in such large quantities was the end of 2008.

The departure of speculative capital from the Chinese economy at this point makes a lot of sense. The yuan gained 5.1% against the dollar in 2011, but in 2012 is expected to gain just 2% to 3%. Property prices are falling and expected to fall further. The Shanghai Composite Index dropped 21% over the course of 2011 and sentiment in the equity markets remains fragile.

In short, all of the normal arguments for investors to keep their money in China no longer apply. When that’s the case, it’s natural that capital will start to head for the exit.”

Posted 1 minute ago by Edward Strafaci

via What a Smart Guy -Edward Strafaci.

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