Advisors Who Are Skeptical About China Can Protect Against A Slowdown

Tuesday, April 26, 2011 07:32
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Advisors Who Are Skeptical About China Can Protect Against A Slowdown

Tags: emerging markets | energy

If the China economic miracle takes a dive, a lot of gung-ho investors are going to be caught flat-footed.

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To hedge against a Chinese slowdown, advisors should take a look at a neglected sector, Chinese utilities, according to Liam Denning of the Wall Street Journal.


Chinese utility company stocks are down since 2009, largely because China’s government controls electricity prices and has kept them artificially low due to inflation concerns. At the same time the price of coal has soared 50%, catching utilities in a big squeeze.


If the overall Chinese economy slows, demand for electricity will fall. But that would allow the utility companies to cut costs and increase margin since there would likely be a lag before Beijing acted to cut electricity prices, Denning writes.
 

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