Betting on China’s market collapse has been a good bet over the past couple of months.
Since late May, the Shanghai Composite has fallen by nearly 30%, about 25% of the companies trading on the Shanghai and the Shenzhen have ceased trading, and according to the China Securities Regulatory Commission, the current mood of panic and large increase in selling is causing a strain of liquidity in the stock market.
For those with exposure to China, this past month has been especially painful. But those who knew China’s irrationally exuberant stock market was teetering on the edge of collapse – and invested accordingly – are now sitting on some pretty fat gains. Especially those who bought shares of the Direxion China Bear ETF (NYSE: YANG).
Back in May, you could’ve bought YANG for less than $50 a share. This morning, YANG hit $101.54.
Nothing like a fat double in less than two months!
Of course, betting on the failure of anything is always a risky bet. And quite frankly, I hate the idea of hoping for anyone to fail. But the truth is, if you see a crisis coming, there’s no reason not to capitalize on it.
Now how long this market massacre in China will last is still up for debate. China’s stock markets have now lost well over $3 trillion, and there could easily be more to come. The bottom line is that China’s economy has long been overvalued, and after many years of denial, it looks like the obligatory volatility that comes with irrational market behavior has now arrived with all the subtlety of a brick to the face.
For me, I’m out of China completely right now, and will wait on the sidelines before dipping my toes back in the waters of the Middle Kingdom’s casino. It’s just too invested with sharks at the moment, and I don’t have the stones to risk becoming chum.