China's Year of the Rabbit Is Here - How to Trade It With ETFs

by: Moby Waller

February 3, 2011, is the Chinese New Year, which beyond China is also celebrated in many countries with significant Chinese populations such as Hong Kong, Indonesia, Malaysia, Phillipines, Singapore, Taiwan, Thailand and Macau. The dating of the Chinese calendar may go back as far as 2500 BC or more. There are 12 animal-related signs for any given year (as you may have seen at Chinese restaurants), and this new one is the Year of the Rabbit.

The rabbit tends to symbolize the "Earthly branch" of the Chinese zodiac (versus, Water, Fire, Metal, etc). Interestingly enough, in the Vietnamese zodiac, the Cat takes the place of the Rabbit — which may be because the Chinese character for rabbit sounds simliar to "meo" in Vietnamese which means cat (meow).

My cursory research says that those born in the Year of the Rabbit are very lucky, and in general will be peaceful/placid, as will be the year itself. Let's hope so, given the political and weather troubles we see worldwide.

So onto ETF trading in China. With my BigTrends ETF Tradr colleague Andrew Hart, we've compiled a list of the most active China ETFs. Some of these are more liquid than others both in terms of the underlying and the options, so keep an eye on the bid/ask spreads:

Top China ETFs:

(NYSEARCA:FXI) – iShares China 25

(NYSEARCA:EWH) – iShares Hong Kong

(NYSEARCA:HAO) – Claymore China Real Estate

(NYSEARCA:CQQQ) – Claymore China Small Cap

(NYSEARCA:CHIQ) – Global China Consumer

(NYSEARCA:PGJ) – Powershares Golden Dragon


Here are some of the more liquid Ultra/Leveraged/Bearish ETFs. We advise to be cautious with these unless you're a day trader:

(NYSEARCA:FXP) - ProShares 2x Ultra Short China 25

(CZM) – Direxion 3x China Bull

(NYSEARCA:XPP) – ProShares 2X Ultra China 25

Let's examine the relative performance of these China ETFs and see what trends and concepts we can glean from the data:


Green – EWH
Yellow – CQQQ
Orange – PGJ
Aqua – GXC
White – FXI
Blue – HAO
Red – CHIQ

China ETFs Performance Chart

Let's take a closer look at the underperformer in the above chart, CHIQ. This is the Global X China Consumer ETF, and the Top 10 Holdings from Yahoo Finance look to be lesser-known Chinese manufacturers and comprise about 50% of the ETF - others may have more information on these holdings than I do. The only one of these top holdings that is publicly traded in the U.S. is New Oriental Education & Technology Group (NYSE:EDU), which offers educational programs and products to China, primarily in training English and other foreign languages. That stock is only down around 7% in the time frame examined above, so others in the top holdings appear to be dragging CHIQ down.

Also note in the above performance chart that the most well-known China ETF "proxy" FXI is somewhat of a laggard as well, currently. Those looking for upside returns may want to bank on one of the stronger ETFs in the chart above, but do your own due dilligence of course.

Bottom Line: China ETFs in general are languishing currently, and we're finding better short-term bullish opportunities elsewhere. Certainly from a long-term perspective, this may well be the "Century of China" with plenty of growth opportunities lying ahead over the coming years in the Emerging (Emerged?) Dragon.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.