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NEW YORK ( Insider Monkey) -More than a year ago Jim Chanos raised questions about China's enormous real estate and construction investments and stated that he is shorting China's real estate bubble. "Bubbles are best identified by credit excesses, not valuation excesses," he said on CNBC, adding, "And there's no bigger credit excess than in China."
Chanos didn't specifically lay out how he was shorting this bubble. Foreigners aren't allowed to invest in stocks listed inside China. Chanos implied that he was focusing on companies that sell cement, glass, copper, steel and iron ore to China's booming construction and infrastructure industry. Insider Monkey, your source for free insider trading data, investigated several indirect ways of shorting China's real estate bubble. Here are seven ways of shorting China's real estate bubble.
1. Shorting commodity companies that directly benefit from Chinese demandBHP Billiton has been thriving on China's iron-ore demand over past few years. Around half of Brazil's and Australia's iron-ore production have been shipped to China during the past year. Rio Tinto (RIO), Vale (VALE - Get Report), Peabody Energy (BTU - Get Report), Freeport-McMoran (FCX - Get Report), Southern Copper (SCCO) and POSCO (PKX - Get Report) are among the other companies that benefit from the China effect. Last month Chanos also disclosed that he is short integrated oil companies such as Exxon Mobil (XOM - Get Report), Royal Dutch Shell (RDS) and Petrobras (PBR). Shorting oil producers doesn't seem to be an effective way of gaining some short China exposure though. Legendary investor George Soros has a large Petrobras position, even though he is short emerging markets. 2. Shorting Commodity ETFs Another alternative to shorting commodity produces is shorting commodies through ETFs. We can short oil directly by selling US Oil Fund (USO), Crude Oil Total Return ETN (OIL), PowerShares DB Crude Oil Long ETN (OLO), United States 12 Month Oil Fund (USL), US Gasoline ETF (UGA), United States Brent Oil Fund (BNO), DB Oil ETF (DBO), US Natural Gas ETF (UNG) and Heating Oil ETF (UHN). We can also short sell base metal ETFs such as Global X Copper Miners ETF (COPX), Global Copper Index ETF (CU), iPath DJ-AIG Copper Total Return ETN (JJC), Nickel ETN (JJN), Tin ETN (JJT), Aluminum ETN (JJU) and Lead ETN (LD). Alternatively we can short US Commodity Index ETF (USCI) or ProShares Trust Short Basic Materials (SBM) to build a short position in basic materials. We should warn the readers that this is not a fool-proof way of profiting from a possible Chinese real estate bubble though. There are several prominent hedge fund managers who consider commodities as a hedge against a possible US dollar depreciation. Jim Rogers is extremely bullish about commodities claiming that commodities will go up regardless of what happens in the U.S. and World economy.