Investing in other countries can be very lucrative, but for quite a while, developing stocks have been a lot riskier than normal. Even a strong and growing economy like China’s has fallen in a considerable manner. The Shanghai Composite Index has lost about 5 percent this year and has lost 33 percent over the last four years. This is a very pronounced drop and has worried international investors in a great way.
One of the interesting things about China is that over those four years, experts all across the board were talking about how strong China’s economy was. The drops in prices were there, obviously, but they weren’t supposed to last that long. Yet they have, and four years later, they are even worse and there is no sign of this changing in the near future.
Does this mean that you cannot make money in the developing nations? Certainly not, not if you pay attention to the rest of the world and everything that’s going on within it. Let’s break this down a little more so you can see the reasoning behind it. This week, it looks likely that the support level of 1,980 will be tested in this index. If the price falls below this mark–and there’s a chance that this might happen–it opens up a huge floodgate for even more losses. Traders have operated on the assumption that this price will not be breached, and if it does, the indication is that the market is much weaker than people may have thought. And if this is the case, prepare for a drop.
There’s another big warning sign that the source of the above information didn’t take into account either, but is just as relevant. A lot of private Chinese funds are beginning to establish major short positions. The rich folk in China are hedging their positions, preparing to make a profit in the event that prices all over the country begin to drop. This is not something that the major private funds would be doing if there wasn’t a highly probable chance that it would happen.
Who will profit off of a drop in the Chinese economy? Certainly not the mining industry. Copper prices have fallen in a dramatic way, and a lot of that has to do with the fact that China is not buying as much for its national infrastructure, especially for its growing needs in expanding the oil pipelines and energy generation. If one of the world’s largest importers of copper stops buying, demand goes down, and price follows.
Right now, a lot of experts are saying that this likely drop will not have a big effect upon U.S. markets, but the truth is, that’s impossible to say at this point. China and the United States have been linked economically since the days of Richard Nixon’s presidency, and, for the most part, it has done a lot of good for the world. But right now with the given situation, that link might prove problematic. Then again, it might not. It’s still too early to tell for sure.
However, you can profit off of a market loss without resorting to short sales. There’s nothing wrong with short sales, but they can have a negative impact upon a smaller company, and they can be very expensive if you use them often. Instead, using binary options can be a very attractive solution. Pretty much all of the major US binary brokers offer the Shanghai Composite in some form on their sites, and taking out a put option can allow you to make a profit off of a loss. It’s at no extra cost to you like shorting a stock would be, and because it is not directly connected to the asset itself, it has no impact upon prices. It is independent and it only helps you out.
***Your capital may be at risk. This material is not investment advice.***
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