Tags: sean | hyman | china | crash

Get Out of the Way — China Stocks Are About to Crash

By Sean Hyman   |   Monday, 15 Mar 2010 05:01 PM

Here's something I don't see anyone talking about and I'm not sure why.

Maybe it's because everyone wants to believe that everything is getting better.

So what is it?

It's China's stock market — the Shanghai Composite Index.

This Chinese stock index has been making lower highs and lower lows since November. However, recently it's pushed through its uptrend line. Then it went on to break some serious technical areas (like through its 50-day and 200-day simple moving averages).

So by any metric that you use, Chinese stocks are sinking once again.

Why should this matter to you even if you don't own any Chinese stocks?

China is one of the main consumers recently that has been propping up the world. The Chinese were the ones with the soaring GDP (economic growth) even when most of the world was in a global recession. China was still buying commodities and expanding the nation at quite a good clip.

In fact, China was one of the reasons why we didn't go into an "all-out depression."

As China slows its consumption, it will have a ripple effect across most major countries. This means that it will end up affecting your own stock portfolio even if you don't own Chinese stocks or any other foreign stocks.

So why are China's stocks falling?

It's because the rise of inflation has been quite steep there and China’s government is taking some steps to cool inflation — and these developments are affecting their corporations.

For instance, China’s government has raised the reserve requirements that the nation’s banks have to hold. The more money China requires banks to hold in reserve, the less cash banks have to lend to consumers and businesses.

There's talk that China may have to raise interest rates and raise the value of its currency, the yuan, in order to further control inflation.

The thought of all of this has slowed businesses a bit in China. Investors have turned cautious and pre-emptive, pulling out of their stocks ahead of time.

With all of this, Chinese stocks are slumping.

It's only a matter of time before that slump spills over into many other commodities as China puts the brakes a bit more on growth.

It will have a ripple effect on stock markets around the world as the slump in China’s stock market (once it becomes obvious to everyone else) causes investors to pull the reins elsewhere.

It won't be long before that takes place ... possibly only months.

Therefore, you'll want to take precautionary measures now to protect yourselves.

I'll be directing my subscribers to the Money Matrix Insider newsletter to take defensive actions by making sure that we are in certain currencies (like the yen) that will actually profit and go up in value when all of this comes crashing down.

I'll be helping their currency portfolio, but in the grand scheme of things, we'll be helping their overall portfolio as they have a partial hedge in place that will help take the sting out of their portfolio since these currencies will be rising as stocks fall.

Therefore, they won't "take it on the chin" as hard as some investors who just have stocks and bonds and no currency exposure.

I hope you'll be sure to prepare your portfolio as well as I've "sounded the alarm" ahead of time.

There aren't many voices out there that do that. Most of them pick up on something when it's way too late.

However, I'm always "knee deep in it" while I'm researching diligently for my subscribers.

I thought I'd pass this warning on to you now so that you could prepare yourselves for what's to come as well. It won't be pretty.

The picture for stocks is about to turn uglier for a long while before it gets better.

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