This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

China's Unprecedented Proactive Bubble-Bursting

They are reining in local companies carry-trading USD/CNY on the expense of PBoC. It's been the land of the scams and fast money for a long while. Finally they're trying to change that. If they could further rein in the de facto monopoly by state-owned enterprises and provide more room for private enterprises to grow, the foundation would be in place for another decade of sustained economic growth, before they have to face the baby-boomer retirement problem that developed world is struggling with now.

I don't know when the Chinese market ( iShares FTSE Xinhua China 25 Index ETF (FXI)) will calm down and turn around. But I don't think this is a systemic crisis. Considering how long and how badly the Chinese financial system has been managed and distorted, a proactive bubble bursting is very much necessary and healthy.

Ironically, this is only possible with the combination of the new leadership and the complete lack of independence of Chinese central bank. If they succeed in bursting the financial bubble and forcing the economic transformation without devastating the real economy, it would be a monumental achievement in the history of monetary policy. I wish them best of luck.

If you're lucky enough to have dodged the recent rout in Chinese market, it may be time to slowly ease into some exposure as part of diversification. No hurry, though, as short-term downside risk is still high and could last awhile. But it deserves close attention and could be one of the best long-term investment opportunities that do not depend on black swans.

At the time of publication the author is long FXI.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SINA $37.12 -0.72%
FXI $43.71 -0.14%
AAPL $128.45 -1.50%
FB $78.94 -1.80%
GOOG $558.64 0.57%


DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs