Market Overview

Is China Primed to Take Over the World?

Many people have come to terms that China will eventually retain the position as the foremost global superpower at some point in the future. What many people may not expect is that the wheels are already turning right now. Various events in the United States as well as Europe may point to China seizing control over the Western World's coveted spot as the foremost world power.

Recently, United States intelligence officials may have uncovered the biggest cyber espionage case in US history. Intelligence officials purport that China is using elite programmers to data mine sensitive information from top US companies along with other Western agencies.

China has not infringed on US government databases, but the fact that it has perturbed corporations' securities essentially cancels out competitiveness in the markets. Stealing proprietary information from companies gives the Chinese an unfair advantage as far as developing their own corporations. The Chinese hackers have slithered their way into a multitude of sectors, and may be able to eventually use the data for their own growth purposes going forward.

On the European front, officials are scrambling to find funding for the European Financial Stability Facility. One of the biggest investors is the state of China. While the specific size of its surplus is unknown, China has economic and political interests to help fund the EFSF.

First, importing and exporting will be severely affected if the Eurozone collapses. Chinese trade deficits are likely to widen and the cost of exporting materials will most likely increase as well. This particular reason is why the Chinese have been continuously purchasing US debt. On the other hand, the Chinese government has the power to negotiate specific deal terms with the EFSF.

The Chinese could negotiate bond deals that give it power over government agencies or European companies. While talks are still going on and investors are unsure of what China may do, it seems likely that China will try to leverage itself to the best position.

The Eurozone is in dire need of outsider help. One of the biggest fears that traders currently have is massive triggering of CDS contracts. The sovereign CDS market trades at volumes greater than $1 trillion, and one of the hot CDS contracts is the Greek sovereign CDS. One of the strategies that the EFSF is contemplating is a voluntary haircut of existing Greek debt. Several numbers have been thrown around, but debtors may voluntarily accept new Greek bonds with a 60% haircut yet a high yield, up to about 8%.

While this does not impact China as great as it does other investors, China has to watch out for CDS being triggered. If a Greek overhaul is involuntary, China may have more bargaining power over the Eurozone to ensure that its interests are protected. For the sake of the Western world, the EFSF may want to quickly determine how to take care of Greek sovereign CDS.

Investors and traders alike have to understand that China is currently positioned to exercise its economic superiority over the Western world. It is slowly gaining power over corporations and governments in the Western world, and may very well be on track to become the foremost superpower within the next decade or two. While some techniques are less than honest, China is making rapid moves.

Investors always have to keep up with the news. While China does not directly affect the American economy, a power shift in terms of economic control and political superiority will eventually affect American life as we know it. Traders have to keep in mind that any possible news that affects the supply and demand of crude oil will move markets. As such, traders should keep up with real-time news and be able to act quickly when new developments occur.

ACTION ITEMS:

Bullish View:
Traders who believe that China will become the biggest superpower soon might want to consider the following trades:

  • If China helps out the EFSF, long the Euro. This may be a better short-term trade, but could also work out in the long-run.
  • If China successfully integrates information derived from its data mining efforts into local companies, short the American counterpart. This sort of news will most likely be very negative for American companies, as some of the most proprietary information has been leaked.
  • If China swiftly becomes the foremost superpower, long the Chinese Yuan, as some sort of inflation is imminent.

Bearish:
Traders who believe that China is not likely to gain power rapidly may consider an alternate position:

  • Long the US Dollar, which will likely gain against both the Euro and the Chinese Yuan.
  • Commodity prices are likely to decline, as supply and demand issues will ease up if China's growth significantly slows. For example, crude oil will probably decline if economic metrics point to slower Chinese growth.
  • Short European sovereign debt, as a weak China may not invest in the EFSF.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: News Broad U.S. Equity ETFs Commodities Forex Events Global Econ #s Economics Best of Benzinga

 

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