Anticipating the kinks in the road

1 The Chinese economy has been driving the world’s growth for the last couple of years, but some economists are beginning to worry that it is overheating. Inflation hit 5.1 per cent in November according to the latest figures, with price increases especially intense in coastal cities. The Chinese government has been trying to damp down property speculation, while on Friday, it increased banks’ reserve requirements in an attempt to suck liquidity out of the system. So far, however, it has avoided raising interest rates. With Chinese savers seeking out ever more speculative investments to beat inflation, more monetary tightening may be on the way. CFD traders should watch out for knock-on effects – mining equities, energies and metals in particular are vulnerable.

2 Thanks to the uncertainty surrounding sovereign solvency in the European periphery, European equities have been sold heavily over the last few months. With fears assuaged but not yet eliminated, it is probably too early to go long on peripheral equities, while German one are possibly a little too popular. Nicely in the middle though are French and Italian stocks. Analysts at UBS describe those countries as “forgotten, but not rotten”, with historically low price-earnings ratios as a good reason to go long. AlphaValue, a research firm, reckons that all of the French shares it tracks are undervalued, while 22 out of 25 Italian ones are, offering plenty of potential for CFD traders to profit.

3 Copper has had a remarkable year. Thanks to gargantuan Chinese demand, the price has risen by 35 per cent since last spring to $9,215 a tonne yesterday. As stockpiles dwindle, many analysts expect that to continue. Chinese demand snapped up in November, increasing by 29 per cent month on month according to analysts at RBS. RBS also points to new physical copper funds as a potential driver of demand. Goldman Sachs analysts expect prices to increase to $11,000 a tonne next year. Chinese tightening might lead to disappointment, however, so CFD traders ought to be careful.