The Chinese government is taking steps to restrain growth. Wall Street analysts have begun to take steps to warn investors of overbought conditions for Chinese stocks, saying China is significantly more expensive than other Asian markets. What more signal could an investor want to reduce exposure to, or at least tighten stops, on Chinese stocks?
The 13-weeks Rate of Change [ROC] chart below supports the fundamental arguments. It shows the U.S. (SPY) staying within a range of +/- 10% ROC, and shows emerging markets (EEM) staying within a range of +/- 20% ROC. However, China (FXI) has recently broken out of the emerging markets range and has pierced +30% ROC. Even after a bit of a stall, FXI remains well above the +20 ROC emerging markets range.
Discretion may be the better part of valor here, as Shakespeare might have said.
[click to enlarge]