China ETFs: Time to Buy?

China’s government recently cut its key lending rate by the most it had in more than a decade. It's also pledged a $580 billion stimulus package. Together, these efforts are supposed to stimulate the Chinese economy.

At least that's what a number of prominent international money managers think. Mullen, chief executive officer at Shanghai-based Emperor Investment Management, believes that prices haven't been this attractive since the Asian financial crisis of 1998. Mullen also maintains that Chinese businesses that serve the Chinese consumer and the mainland's infrastructure will post better earnings growth than anywhere else in the world.

Mark Mobius, executive chairman of Templeton Asset Management, agrees. He recently explained that he is aggressively purchasing consumer discretionary stocks due to a likely consumer "boom" in emerging standouts like China.

It's difficult for me to go back and review what each man may have said about China's future in October, 2007... before major China indexes fell 50%+ from their highs. I do know, however, that both Templeton China ((TACWX) and Emperor China, a private hedge fund, lost 50% in value in 2008... just like the indexes (click on chart below to enlarge).

So call me skeptical if the talk about boundless opportunity isn't a bit self-serving. The reality is, the world is in this thing together. If developed countries worldwide are able to show signs of pulling out of a multi-year recession, the emerging countries will likely appreciate at a faster rate.

More downside risk, yet more upside reward. It all seems to depend upon the elusive "bottom" for the asset class we call, "stock."

We can note, though, that the iShares China 25 Index (FXI) is closing in on its 50-day moving average (click on chart to enlarge). Not since June has it genuinely held above its shorter-term trend. It hasn't been above its long-term 200-day average since January 2008.

If it breaks out above the 50-day, one might wade into to Chinese waters. Yet one will need to be disciplined with a stop-loss percentage in place... to guard against the possibility of rapid deterioration.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[CLH:]

If things get better in the West then China will rally. Who knows?

2008 Dec 05 07:08 AM

[fxinot:]

FXI touched the 50 in July and August numerous times. Now look where it sits. Even if it cleared the 200, it would still be a major loser over the past year. This article smells of a pump or a prayer.

2008 Dec 05 08:42 AM

[orientalpap...:]

I bought some today just before the Chinese market closes. Fingers crossed. ;-)

2008 Dec 05 01:21 PM

[jse17:]

The SSE index has quietly gained 21% since early November. Obviously, no one knows if this is the beginning of a sustained up-move. The subsequent question of does it matter if this move continues becomes rather moot in a long term perspective. Whether it is the current perspective or a future rally that creates investor’s prosperity, such a play will occur. A recent Jim Roger’s lecture on China’s future prospects supports this thought.

I realize that we are in an ETF discussion. In context, I am a huge ETF fan especially when a closed end fund is unavailable or selling at a premium. Alternatively, an on-point, well managed CEF selling at a double digit discount is at a minimum of interest. Several China CEF plays are available selling at substantive discounts e.g., CHN. I am attaching a solid CEF research site for those that may have an interest.

www.closed-endfunds.co...

As per Marty Zweig, “Do not fight the FED” and I will add, the Chinese monetary authorities. The “boys” are now favoring monetary expansion and growth and my intent is to hop on the train. Best of luck to all and, “This too shall pass” as have all previous bad times!

2008 Dec 05 05:34 PM

[Urbane Gori...:]

Actually, It's really quite easy to find out what they said... Here... I just Googled 'Mark Mobius" and August and 2007... jegan ;-)

----------------------...

Mark Mobius views on Emerging Markets in The Economic Times
August 18th, 2007 by KRS

Templeton Asset Management managing director Mark Mobius feels that emerging markets are equipped to deal with the global crises. Moreover, the fundamentals of emerging markets equities are much stronger today than they were previously and thus are better equipped to withstand these outflows.

2008 Dec 05 10:59 PM

[Pipo:]

China is Jim Rogers`s top stock market pick.

jimrogers-investments....

2008 Dec 07 02:17 PM