ETF Periscope: A Good Time to Buy the Dip in China Equities? (Part 2)

“The bad news is you’re falling through the air, nothing to hang on to, no parachute. The good news is, there’s no ground.”  --  Chogyam Trungpa

OK, it’s earnings season again, though the first round of reports this week won’t reveal a whole lot, at least not until Friday, when J.P. Morgan (JPM) announces its Q2 results.

Then, things could get interesting, as investors will decide if bottom-line fundamentals are enough to supersede the recent Fed hullaballoo that centered on the question of when, not if, the central bank would begin to taper its massive bond purchasing habit.

If last week may be taken as any sort of accurate indication, Wall Street seems to want to regain some of the year’s upward momentum that it lost over the course of the last month, as all three of the key indices improved on their bottom lines, powered by economic data from both the manufacturing sector and the labor market.

The Dow Jones Industrial Average (DJIA) gained around 1.5% for the week, about the same as that seen in the benchmark S&P 500 Index (SPX). Meanwhile, the Nasdaq (COMP) came out on top among the trio of leading equity indices, notching a 2.2% increase.

What the Periscope Sees

Last week we considered the possibility of dipping a toe into the chilly pool of China equities, many of which have taken a strong beating this year as the world’s second-largest economy continues to experience a cooling of two decades worth of over-heated growth.

June’s staggering 15% loss in China’s Shanghai Composite Index was partially attributed to credit tightening by Beijing, which has made a strong effort to calm some of the excessive speculative activity occurring in multiple sectors, including the housing market.

However, last week’s statements made by high-ranked government officials seemed to be geared towards reversing, at least slightly, the recent downward momentum. But, with a number of key economic reports slated to be released throughout July, the downward trend could easily continue, as China’s second-quarter growth is expected to come in at around 7.5%, a number that would be reason to party in the majority of the world’s economies, but something of a weak number in terms of China’s GDP.

Bottom line: Though small investors might want to wait a few more weeks before making much of a commitment to the China equities market, another dip could provide a buying opportunity in an economy that continues to offer big potential.

Here is a list of the top-six China equity-based ETFs, ranked in terms of assets. Worth noting is the fact that only one of the six, PGJ, is in the black for the year, though the largest of the list, FXI, which contains over 50% of its holdings in the financial services sector, might hold the most opportunity for a reversal should China’s credit crunch start to ease.

FXI -- iShares FTSE China 25 Index Fund, -20.72%

EWH -- iShares MSCI Hong Kong Index Fund, -5.97%

MCHI -- iShares MSCI China Index, -17.55%

GXC -- SPDR S&P China ETF, -15.10%

HAO -- Guggenheim China Small Cap ETF, -9.84%

PGJ -- PowerShares Golden Dragon Halter USX China Portfolio, +9.81%

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, JPM, FXI, EWH, MCHI, GXC, HAO, PGJ, FED, China, earnings season /