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Caution in An Increasingly Bullish China Stocks.

Hey people!

In April/May if you have invested in Chinese stocks almost all or most risk associated with the China market would have been priced in. The Shanghai Composite Index has since rose more than 20% over the last three months. Having performed so, it corrected by more than 5% in the last few days. Peak on 11/11/10 @ 3,185 and closed on 17/11/10 @ 2,838 down by -347.09 pts or -10.9%. We’ll see if its just a correction or is it heading for another fresh down trend.

An interesting fact is the raising of interest rates by the Chinese authority. A major risk is that it will be raised again, maybe between 50 - 100 basis points! (last increase was 25 basis points)The market will factor in these series of hikes that is expected to come over the next few months. What more can the BOC do? After removing or capping loans for the 3^rd purchase on properties – no longer can one apply for property loans on their 3^rd property. Guess the Chinese government have to shift from liquidity controls to addressing the rising inflation rates, reported to be at 4.4% currently.

I believe that after the property market has done well since the reforms since late 1998, we will have the followings sectors that will be a rising star in China:-

1. 1. Pharmaceutical

2. 2. Energy

3. 3. Consumables

4. 4. Financial (good time to look at their banks)

Never the less a pragmatic approach is prudence!

Being an optimistic pessimist, we always hope (or pray) for the best and be prepared for the worst!

Here are some tips, or Golden Rule of Thumb that has over time proven to be correct:-

1. 1. Buy when others are fearful.

2. 2. Always be in a position to average down.

3. 3. Forget sell and buy back strategy – they don’t work, ask Warren Buffet!

4. 4. Be tolerance to risk – what’s yours over the next 3years to 5 years?

5. 5. Work with an advisor that’s knowledgeable – rather than one who believe in “knee-jerk” views that only benefits them self.

Till then and happy hunting! An exciting year closure to come!

Tj