Tag Archives: holiday

How To Trade A China GDP Crash

The theme early in 2016 has been China and oil crashing, which both go hand in hand. If growth in China is slowing, global demand for oil will slow as well, thus creating lower oil prices. This factor, along with the recent rise in global supply, has oil in a free fall. At the moment, there is a lot of uncertainty creating negative sentiment in every global market, not just China. The Chinese economy is the second largest in the world and a key driver of growth for the world. A slowing China would facilitate a dull global economy and lower revenue for U.S. companies. Foreign sales account for over 30% of revenue for S&P 500 companies; a global slowdown will have a significant impact on the bottom line and stock prices. This potential sluggish growth and slowing investment in China has investors and traders speculating how bad China might be. They will get their answer soon. The Event Monday night, at 8pm CST, China will announce Q4 GDP. The number is expected to come in at 6.8% versus 6.9% last year. Industrial production, retail sales, and fixed asset investment are all expected out as well. These numbers will give us insight into why global markets have been hit with such extreme selling pressure. The Chinese Academy of Social Sciences, a government think tank, predicted the economy could expand at a slower pace between 6.6 percent and 6.8 percent in 2016. This would be due to weak external demand and cooling domestic investment. In addition to the GDP announcement, the Chinese New Year comes on Feb. 8th. Markets are closed for the whole week, and you can bet most investors do not want to have exposure over the holiday. I would expect if we see a bad GDP print, volatility and selling pressure will continue, at the very least, until the holiday. I grabbed a chart from tradingeconomics.com to show the declining trend in quarterly GDP. As you can see, this is not something new; China has been slowing and now we are at a crucial point. Let’s go over three potential scenarios into how to trade the number. Scenario 1: Chinese government fudges numbers and GDP comes in at 6.8% or above There is a lot of doubt when it comes to Chinese economic numbers. These accusations have been made before, but if China were to announce a number above consensus, nobody would believe it this time. There are signals that the Chinese economy is slowing down, their stock market being one of them. If China were to post 6.8% or a couple ticks above or below the consensus, we might see a calming of markets into the Chinese New Year. Scenario 2: 6-8% GDP print This is the most likely and the closer to 6.8% the calmer the markets. Scenario 3: Number comes in at 6% or lower This scenario shows us that China’s economy is significantly slowing and that the recent global stock market selloff was warranted. Due to doubt in government numbers, most people will speculate it’s even worse, so bad even that the government had to give the world a more realistic number. Global markets seem to be expecting a lower print, perhaps in the low 6% area. It is not the end of the world and does not mean markets go into a panic; however, if we see something in the low-high 5% area, or below that, there will be significant pressure on global markets. How to trade the number: ETFs There are 38 ETFs that enable you to play china in a variety of ways, but if you are trading this number, you might as well play the aggressive ones. The two ETFs below are for you if you are bullish. A trader can benefit if he thinks China is oversold and will print the number as expected…or because the government says it must be. Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEARCA: ASHR ) will give you exposure to the Shanghai stock market. Direxion Daily CSI 300 China A Share Bull 2x Shares ETF (NYSEARCA: CHAU ) will move up and down twice as much as the CSI 300, giving you double exposure. If you are bearish and think China will print a significantly lower number, then go with Direxion Daily FTSE China Bear 3x Shares ETF (NYSEARCA: YANG ). This is Direxion’s triple leveraged ETF product that will go up as the Chinese market goes down. Be cautious on this one, leveraged bear products can have significant downside when markets rally. Below is a 10-year chart of ProShares UltraShort Financials ETF (NYSEARCA: SKF ) as an example. These leveraged bear ETFs should only be treated as short-term trades or hedges, not investments. How to invest the number: Three top-rated stocks JinkoSolar (NYSE: JKS ) is a Zacks Rank #1 (Strong Buy) and a Chinese solar play. While a disappointing GDP number will hurt the overall story of Jinko, the company is diversified with a global network across Europe, North America and Asia. 2016 estimates have risen from $3.93 to $4.40 over the last 90 days, showing strong growth potential over the next year. The company also sports an “A” rating in value, in a strong rated industry, currently ranked 13 out of 265 (Top 5%) Zacks industries. Momo (NASDAQ: MOMO ) is a Zacks Rank #2 (Buy) and Chinese social networking play. Momo is a free instant messaging application for smartphones and tablets. The company also sports an “A” rating in momentum and is currently ranked 95 out of 265 (Top 36%) Zacks industries. 2016 estimates have risen from $.23 to $.54 over the last 90 days. Weibo (NASDAQ: WB ) is a Zacks Rank #2 (Buy) and a Chinese social media play. Weibo is a Chinese microblogging site similar to that of Twitter (NYSE: TWTR ) and Facebook (NASDAQ: FB ). The site is very popular in China and used by over 30% of China. The company is not a value play, but has momentum behind it with a Zacks “B” rating. 2016 estimates have risen from $.38 to $.49 over the last 90 days, showing us that the analysts believe the company has the ability to grow through monetization. Most of these stocks are down over 30% from last year’s highs and down big today as I type. There is a rather large risk that another leg down is coming on a bad GDP number. If that’s the case and scenario 3 plays out, I would suggest you take that opportunity to limp into these high-rated stocks for a long-term China play. Original post

Consumer Confidence Rebounds: 2 Top-Ranked ETFs To Buy

Consumer Confidence Index – an important indicator of consumer sentiment – increased in the final month of 2015, rebounding strongly after its November decline. The Conference Board reported that the index rose to 96.5 from November’s upwardly revised reading of 92.6. It was also higher than the consensus estimate of 93.5. Meanwhile, consumers remained optimistic about the present economic environment and also confident of the economic scenario over the next six months. The Present Situation Index improved to 115.3 this month from last month’s level of 110.9. Also, the Expectations Index increased from November’s 80.4 to 83.9 in December. The survey showed that the share of consumers who believe that the current business conditions are “good” increased significantly to 27.3% in December from last month’s share of 25%. Also, the share of consumers who believe that there are “plentiful” job opportunities gained to 24.1% from 21%. Consumers who think that the job market will remain favorable also rose from 12% to 12.9%. Lynn Franco, Director of Economic Indicators at The Conference Board said: “As 2015 draws to a close, consumers’ assessment of the current state of the economy remains positive, particularly their assessment of the job market. Looking ahead to 2016, consumers are expecting little change in both business conditions and the labor market… but the optimists continue to outweigh the pessimists.” Favorable Economic Scenario Though the U.S. economy expanded at a slower pace of 2% in the third quarter compared with the 3.9% growth rate witnessed in the second, the economy remained steady for most part of the year whereas other major economies struggled with sluggish growth conditions. A gradual increase in consumer spending, which contributes nearly 75% to economic activity, along with healthy labor and housing market conditions boosted the U.S. economy through the year. Meanwhile, the lift-off that came this month after nearly a decade underlined the Fed’s, “confidence in the economy,” as cited by Fed Chair Janet Yellen herself. The Fed also indicated that “solid” consumer spending, a rebound in the housing market and strong business fixed investment played an important role in the decision (read: Top ETF Stories of 2015 ). 2 Consumer ETFs to Buy Consumer discretionary is considered to be one of the key sectors that attract a major portion of consumer spending, which is believed to increase at a gradual pace given the rise in confidence. Moreover, the slump in oil prices and strong labor market conditions will play an important role in boosting spending at least in the near term. The positives have been reflected in this year’s holiday season, with an e-commerce bonanza and a surge in last-minute shopping cheering the retailers. It has been reported that overall U.S. holiday retail sales (excluding autos and gas) climbed 7.9% year over year between Black Friday and Christmas Eve (read: Consumer ETFs & Stocks Riding High on Holiday Spirit ) Also, when the major benchmarks were grappling with manifold concerns, the consumer discretionary sector succeeded in posting healthy gains this year. As of Dec 30, 2015, the broader consumer discretionary sector – the Consumer Discretionary Select Sector SPDR ETF (NYSEARCA: XLY ) – gained 9.4% in the year-to-date frame. In this scenario, we have highlighted two Zacks Rank #1 (Strong Buy) retail ETFs that are poised to gain from this favorable environment and investing in them may prove to be profitable in the near term. Market Vectors Retail ETF (NYSEARCA: RTH ) This fund tracks the Market Vectors US Listed Retail 25 Index and holds about 26 stocks in its basket. It is a large cap centric fund and is heavily concentrated in the top 10 holdings with 65.6% of assets – the top shares going to Wal-Mart (NYSE: WMT ), Home Depot (NYSE: HD ) and Amazon.com (NASDAQ: AMZN ). Sector wise, specialty retail occupies the top position with around 29% share with Internet & catalog retail occupying the next spot. The fund has amassed $159.7 million in its asset base while average daily volume is moderate at 65,153 shares. The product has an expense ratio of 0.35% with a Medium risk outlook. RTH returned 6.2% and 9.6% in the past three-month period and in the year-to-date frame, respectively. Vanguard Consumer Discretionary ETF (NYSEARCA: VCR ) This product tracks the S&P Retail Select Industry Index, holding 385 securities in its basket. The fund charges only 12 bps in fees. It is also heavily concentrated in the top 10 holdings with 40.7% of assets. Large cap stocks dominate more than half of the portfolio while the rest have been split between the other two market cap levels. Sector wise, specialty retail takes the top spot at 19% share while Internet & catalog retail and restaurants occupy the next two positions. XRT currently has $2 billion of AUM and average daily volume of nearly 175,000 shares. The fund has a Medium risk outlook. VCR returned 4.3% and 5.7% in the past three-month period and in the year-to-date frame, respectively. Link to the original article on Zacks.com