Blockbuster crash of Chinese dairy company Huishan is a warning to mainland investors. Sure, Huishan is an H-share company listed on the more transparent Hong Kong Stock Exchange, but its crash, and the prediction of its crash by Muddy Waters founder Carson Block, is an example of what investors will be dealing with whenever they buy Chinese listed stocks. This is particularly true for the A-shares many investment firms are excited about.
The A-shares are a whole new world for foreign money managers. There are hundreds of companies in a market of a billion people with new money to burn. How exciting! The problem is that many of these companies are a black box. Huishan was one of them. Muddy Waters called it late lasts year, in December, when Block wrote that the company was worthless. On Friday, its share price fell over 85% in Hong Kong. Trading has been suspended.
The company’s chairman said that speculation Huishan’s largest shareholder misappropriated 3 billion yuan ($435 million) to invest in real estate was untrue, Bloomberg reported. Huishan said previously that the allegations in Block’s December report were groundless and contained misrepresentations.
Robert Lutts, chief investment officer with Cabot Wealth Management in Salem, Mass., was in China recently. He’s a China bull long term, but is wary about the A-shares. “You don’t know what’s in these companies. There’s very little research on them. The structures are hard to understand and every time I go to China and come back I’m both impressed and confused by it somehow,” he says.
The MSCI is set to weigh-in on whether to include the A-shares in its MSCI Emerging Markets index at some point in June.
China ETF firm KraneShares told us the odds are 75% in favor of an inclusion.
3. Silver Is (Sometimes) Better Than Gold
Investors are having to rethink their ‘Trumpflation’ call this week. Trump once has referred to the previous highs in the equity market as an indicator of approval in his policies. That’s true. But now the market is showing that investors doubt those policies are going to see the light of day this year, or if they will be an improvement over previous ones, as is the case with the Affordable Care Act revamp. Gold has been rising Over the last five days, the SPDR Gold (GLD 211,52 -1,22 -0,57%) fund is up 1.4% while the S&P 500 (SPY 515,71 +2,85 +0,56%) is down 1.06%. Silver is even better, up 1.9%. When thinking of investing in gold, why not just buy the iShares Silver Trust (SLV 21,07 -0,32 -1,50%) instead? It’s correlated to Gold, and in upmarkets it can outperform. (Over long term, gold wins.)
EPFR Global fund data today showed that equitie funds reported $9 billion in redemptions in the week ending March 22, the largest weekly redemption since last June.
It’s not too late to build silver positions for clients looking to do better than gold.
Both gold and silver have been volatile. That makes for good entry points for market timers. It’s up 12.6% over the last three months (better than gold), but down 3.5% (worse than gold) over the last four weeks. Much of the move is due to the Fed and traders moving fast in the futures market. The Fed is dovish, but still on track to increase the interest rate two more times this year. Simply put, you can say this is a dovish hike and precious metals traders like this news, says Naeem Aslam, chief market strategist for ThinkMarkets.
The risk-on or risk-off mode is also dependent on the outcome of the Paul Ryan healthcare bill. A lot of top down investors are looking at this bill as a window into how easy it is going to be for Trump to get the job done. His pillars of change included repeal and replace Obamacare; cut corporate taxes; and spend billions on new infrastructure from airports to water mains. But if the outcome is negative, as it now appears, the initial knee-jerk reaction could be risk-off mode which is great for silver.
RIAs who think Trump will fail with Obamacare repeal might want to consider precious metals.
ETF Securities conducted a one hour webinar this week on the RIA Channel about investing in precious metals. WATCH THE REPLAY NOW.