China Related Stocks Face Possible Pullback After Strong Run

Includes: EWH, FXI
by: Glenn Rogers

China's Shanghai Composite is next at +44.6% although that gain is not as significant as it might appear because the Shanghai market is largely closed to foreigners. Much more impressive is the 21.5% upward move in May by Hong Kong's Hang Seng Index, which is now ahead 26.3% for 2009.

The strong move in China-related stocks has been great news for readers who followed my advice when he recommended buying two China exchange-traded funds in February. The iShares FTSE/Xinhua China 25 Index Fund (NYSE: FXI), which was priced at $26.81 at the time, closed Friday at $37.37 for a gain of 39.4% in three and a half months. The iShares MSCI Hong Kong Index Fund (NYSE: EWH), which was recommended at $9.74, has done even better. It closed Friday at $14.18 for a gain to date of 45.6%.

Although the long-term prospects for China are excellent, we could see a pullback after this strong run so we suggest taking part profits in both these ETFs now.