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Contributors Hard Landing in China? Stocks say “Maybe”, Aussie says “No Way”
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Besides the possibility of the Eurozone blowing up anytime, there’s another thing that’s keeping some investors awake at night: a possible China crash. The consensus is that China will not have a hard landing. It’s only going through a normal economic slowdown. Nothing to worry about.

But some famous investors are betting China will have a hard landing. Jim Chanos is one of them. He’s shorting Chinese stocks. He became famous after shorting Enron in 2001 and homebuilders in 2007.

If you think China will crash, there’s a much easier way to make that bet than shorting Chinese stocks. You just need to short the Australian dollar.

There’s no questions the Chinese economy is slowing down. That’s why Chinese stocks have not performed well this year. Some stock investors are concerned the Chinese economy may indeed have a more severe economic slowdown.

This year Chinese stocks are down by more than 22%. What’s interesting is that the Aussie is down by just 2%. That’s odd. Australia is highly dependent on China. If China crashed, the Aussie would crash as well. No question about it.

As you can see in the chart below, the Shanghai stock exchange (green line) has recently made a new low. Meanwhile the Aussie (blue line) has been holding its ground. Notice that they usually tend to move together. But in the last few months Chinese stocks failed to bring the Aussie down with them.

In other words, while stocks are pricing in a possibility of a hard landing, the Australian dollar has been ignoring it. I don’t know how much longer the Aussie can hold its ground. All I know is the action in Chinese stocks is not good news for the Aussie.

Notice the Aussie is now moving sideways, within a triangle. Watch that pattern. If it breaks to the downside, the Aussie will most likely try to follow the lead of the Chinese stocks by moving lower.

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