ETF Periscope: A Good Time to Buy the Dip in China Equities? (Part 1)

“Excellence can be obtained if you dream more than others think is practical, expect more than others think is possible."  -- Michelangelo

Maybe it’s just the fact that it’s summertime, but investors seem somewhat slower to pull the buying trigger every time stock prices take a dip, as they have for most of the year.

Seems to be a conviction thing, if the market’s tendency to back off its intraday highs last week is any indication.

Volatility has, indeed, calmed down a bit last week, compared to the previous one, as some soothing words from some of the Fed’s top monetary policy officials seemed to balance off Ben Bernanke’s earlier comments regarding the imminence of QE3 tapering.

It did seem to be an orchestrated attempt by Fed officials to stabilize the markets following the strong negative reaction that occurred in response to Bernanke’s comments that the bond-buying program would be reduced much sooner than investors had anticipated.

If this was the intended reaction, it worked, as the Dow Jones Industrial Average (DJIA) gained 0.7%, the benchmark S&P 500 Index (SPX) added 0.9%, and the Nasdaq (COMP) increased 1.4% over the course of the week.

The numbers were sweet icing on Wall Street’s cake, as the Dow is now up 13.8% for the year. The SPX has added 12.7% YTD, while the COMP has gained 12.6% over the same time frame.

Some of the other global equity markets haven’t fared as well.

For example, China’s Shanghai Composite Index suffered a 15% drop in June alone. The bleeding, attributed to a combination of a weak economy and bank liquidity issues, was somewhat slowed by comments made by a high-ranking government official. The statement, made by the deputy director of the China Securities Regulatory Commission, apparently served to bolster Sino investor confidence enough to slow the downward trend to a crawl, though not enough to reverse it, at least not yet.

So the question is, does a 15% drop in the Shanghai Composite serve as a valid entry point into a market that has a government which possesses at least as many tools to “bolster” its market as the Fed does its own?

Or is China’s economy really heading into the dreaded “hard landing” zone that was a big part of the macroeconomic discussion a mere twelve months back?

Timing any market, let alone China’s, has generally proved to be one of those great fool’s errands. However, for those who have wanted to add some of the Asian powerhouse to their portfolio, it might be a reasonably prudent point of entry for a medium-to long-term trade.

What the Periscope Sees

For those who are looking to get into the China equities market, whether on the short or long side, ETFs can serve as the simplest way to access the region for the majority of individual investors. 

Here are some of the top-performing China Equities ETFs so far for 2013. Be aware that several of the top performers are small caps with lower trading volume, though generally, as a group, they still offer a reasonable level of liquidity to investors.

FXI -- iShares FTSE China 25 Index Fund, 19.60%

PEK -- Market Vectors China A-Shares ETF, 17.53%

FCHI -- iShares FTSE China Index Fund, 15.97%

MCHI -- iShares MSCI China Index, 15.75%

GXC -- SPDR S&P China ETF, 13.48%

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

ETF Periscope
daniel / Tag: DJIA, COMP, SPX, FXI, PEK, MCHI, GXC, volatility, FED, BERNANKE, China, Shanghai Composite Index /