ETF Periscope: A Good Time to Buy the Dip in China Equities? (Part 3)

Never argue with a fool, onlookers may not be able to tell the difference.” -- Mark Twain

So far, July is looking pretty sweet for those investors who have decided to swap the pleasures of the beach for an extended Wall Street voyage through the summer.

For the moment at least, the market seems to be righting its ship after a fair amount of buffeting following Ben Bernanke’s comments regarding the Fed’s intention of tapering off its ambitious bond purchase program.

Apparently, investors have been comforted last week by his new and improved comments, the ones offering reassurance that the tapering isn’t quite as imminent as he first indicated, and that he is really, really advocating for continuing the money stimulus along its current trajectory.

For now.

Until he doesn’t.

In any event, for those investors who chose to “sell in May and go away,” the rewards have been a respite from the big spike in market volatility that has played out over the last seven weeks.

Not a bad thing, especially if you happen to be lolling around on the beach and frolicking in the water, carefree and sunblock swathed. Because really, there’s an awful lot to be said for recharging the batteries, especially if you happen to be sitting on top of the 14% gains the S&P 500 Index (SPX) had made during the period from the front end of 2013 up until the first of May.

For the more intrepid investors and traders, the recent ride has been a bit wild, yet nicely profitable, at least in terms of the key indices.

The SPX experienced a substantial gain last week, topping 3% over the course of the recent five-day session, which put the benchmark index at a new record-high. That left those same intrepid investors with a nifty profit of 5% over their more vacation-oriented brethren, though again,
those gains came at the expense of hanging on through a rather wild ride throughout the month of June.

The Dow Jones Industrial Average (DJIA) performed similarly to the SPX, posting a weekly gain of 2.2% while enjoying its own new all-time highs. And, for those players that favor the tech sector, the news was even better. The Nasdaq (COMP) shot up an impressive 3.5% for the week, hardly enough to rise above its heady dot-com days, but it is doubtful that too many investors carrying the index in their portfolio are complaining.  

What the Periscope Sees

So is it still a good time to jump into China equities following its really bad month of June?

So far, a trend may be building that supports that take, at least based on the 10%+ improvement over the last few weeks that can be seen in a number of key China equity-based ETFs.

For those just tuning in, this is the third in a series of posts exploring the possibility of dipping a toe into the somewhat seductive sea of China equities, a number of which have taken a strong beating in 2013 as the world’s second-largest economy has experienced much more of a hard landing than the expected soft one.

No doubt the 15% drop in the China’s Shanghai Composite Index during the month of June has frightened off a number of investors seeking entry, or perhaps re-entry, into the emerging markets arena, one within which China is still considered to be classified.

But all the fear generated from a government-initiated credit crunch that has caused the sharp sell-off, might be out of proportion to the current circumstances, possibly resulting in a reasonably good entry point into China equities via one of several regional ETFs.

China’s second-quarter GDP will be announced by the government’s Statistics Bureau early in the week, and the estimates are in the 7.5% range, a reasonably solid level for most countries, but a laggard in comparison to China’s most recent decade of double-digit growth. Last year’s sub-8% GDP was a shocker, as it was the first time in about 14 years that China has not hit that number or better.

So for investors, should the new numbers fall a bit below the 7.5% mark, it could be worth waiting a few days until the smoke clears before hopping aboard the China Equity ETF train. However, if the number is low enough to shock the market in a substantial way, the recent slight uptrend could be reversed fast, and patience might be the preferred course of action regarding acquiring a position in the region.

As offered up last week, here again is a list of the top-six China equity-based ETFs, ranked in terms of assets. Once again, it is worth noting that only PGJ is in the black for the year, though the largest of the list, FXI, containing over 50% of its holdings in the financial services sector, might hold the best opportunity for a reversal should China’s credit crunch continue to ease, even at its present glacial rate.

FXI -- iShares FTSE China 25 Index Fund, -17.90%

EWH -- iShares MSCI Hong Kong Index Fund, -3.09%

MCHI -- iShares MSCI China Index, -14.49%

GXC -- SPDR S&P China ETF, -12.05%

HAO -- Guggenheim China Small Cap ETF, -6.85%

PGJ -- PowerShares Golden Dragon Halter USX China Portfolio, +13.62%

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, BERNANKE, Shanghai Composite Index /