Banks in China may be forced to change their investment strategies if the central bank continues to operate with its current lack of transparency or predictability. Late last week, the central bank refused to provide liquidity to the money markets, placing liquidity constraints on some market participants and driving short-term rates to nearly 30%. Anyone pursuing an investment strategy based on Chinese construction may need to rethink plans if the banks tighten lending practices.
In the video below, Fool.com contributor Doug Ehrman discusses recent activity by the Chinese central bank and how to craft an investment strategy around its moves. Companies like Alcoa (NYSE:AA) and Freeport-McMoRan (NYSE:FCX) could be negatively affected, but gold and the SPDR Gold Trust (NYSEMKT:GLD), as well as gold miners – including Barrick (NYSE:ABX) and Goldcorp (NYSE:GG) could benefit. Crafting an investment strategy on the news will require careful attention to what comes next for monetary policy in China.
Fool contributor Doug Ehrman has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.