Trading Chinese Assets vs. “Buy and Hold”


The age-old question when it comes to wealth management, whether we’re referring to Chinese assets or anything else one can invest in: should you trade the asset in question (buy low, sell high, rinse and repeat… hopefully) or simply “passively” buy and hold?

Right off the bat, it makes sense to start by making two things clear:

  1. “Trading” is a spectrum rather than a “one size fits all” option. You can be a position trader who perhaps enters a trade once per year, you can choose to be a swing trader and enter trades once per let’s say month, you can day trade or even be a scalper and enter/exit multiple trades per minute
  2. There is no such thing as “passive” investing in the intellectually honest sense of the word at this point and beyond. The days of buying let’s say a share, holding on to it indefinitely and collecting juicy dividends are all but gone. Think of them exceptions and certainly not the norm. In light of today’s increasingly complex financial industry, opportunities come at go at a pace one would have considered in the realm of science-fiction a few decades ago. As such, you can indeed try to invest in a truly passive manner if you so choose… but let’s just say it would be sub-optimal at best as an approach, with “outdated” being the more precise term

What about Chinese assets in particular?

It is important to point out that on the one hand, there can be increased volatility when it comes to “all things China” due to the fact that many of these assets are either relatively new or downright in uncharted territory. As any trader worth his salt can confirm, volatility brings about opportunity but also potential downside. Traders love it despite the fact that while many live by volatility, perhaps even more die by it. However, the existence of volatility most definitely represents a strong argument in favor of trading… if done right.

However, the “Wild West” nature of many Chinese assets also brings about its own set of problems. For example, the fact that the counterparty risk dimension is more problematic. When trading any half-decent US asset for example, you know that you have a solid and well-established financial industry framework at your disposal. Highly regulated brokers, industry watchdogs and the list could go on and on. Yes, financial calamities such as the Great Recession make it clear that corruption and inefficiencies abound but this doesn’t change the fact that at least… well, there’s something there.

When it comes to China, “uncharted territory” is once again the operative term in many respects. If you thought US middlemen were potentially questionable, let’s just say you might be in for a shock when putting Chinese middlemen under the microscope. At the end of the day, it’s a trade-off you just have to expect: “Wild West” assets frequently come with immense opportunity but the downside dimension tends to be quite a bit more problematic as well. From middlemen to a less than predictable legislative landscape, you have to both understand and accept the negatives if you are serious about putting together a realistic strategy.

What does the team recommend?

In our opinion, position trading with some swing trading sprinkled in represents the most balanced approach as far as Chinese assets are concerned. We would strongly advise against day trading and especially scalping because, frankly, the financial industry has so many resources allocated toward optimizing or even automating processes that the likelihood of you developing an edge is remarkably low.

On the other hand, “buy and hold” is too rigid of an approach when it comes to China in our opinion. Due to the more pronounced “Wild West” elements involved, your strategy needs to allow for a fair bit of flexibility so that whichever curveballs are thrown your way, you have a framework in place which enables you to at least land on your feat or preferably even profit from the curveballs in question, while everyone else is busy panicking.

However, as self-serving as this statement may seem, the odds will be against you no matter which approach you choose if you don’t either meaningfully “get” China yourself or work with consultants who do. As an entity which has been around the proverbial block, with an active brick and mortar presence in China for over a decade, the team is precisely the type of partner which can provide you with a much-needed edge.

What exactly it is that you outsource to us is entirely up to you. You might decide to simply book a few hours of our time for brainstorming purposes every now and then or, on the contrary, you might prefer an approach which revolves around daily interactions. No matter what the sweet spot may be for you and/or your organization, we will do our best to make it work. For more information, visit our Consulting section or to get in touch right away, head on over to the Contact page and send us a message.

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