Playing China’s Year Of The Tiger With ETFs

the-year-of-the-tigerI was in Shanghai last week and saw the preparations in progress for the Chinese New Year celebration to bring in the Year of the Tiger.  We have our Times Square ball but the Chinese go all out, as well, and for them, the Chinese zodiac has serious connotations. 

So serious, in fact, that many people look to the Chinese Zodiac as a stock market forecaster and consider it to be a reliable predictor of the future. 

For followers of the Chinese Zodiac, the Year of the Tiger is bad news for the stock market and their investments.  On a historical basis, Tiger years have been on the low end of performance and in fact rank third from the bottom, only better than the Year of the Snake and the Year of the Horse. 

By comparison, the Year of the Ox which we’re just completing is ranked sixth out of the twelve years on the Chinese Zodiac with rabbit years being the best.  This is good news because the year of the rabbit will be ushered one year from now, so according to the zodiac, this year will be bumpy followed by prosperity in 2011. 

According to CLSA brokerage’s 16th annual Feng Shui Index report, “Tiger years are typically marked by dramatic changes and even upheaval and 2010, much like the tiger itself, sees an energetic and powerful, but impulsive and risky, year ahead.”  But they go on to say that overall the year should be bullish with the strongest part of the year starting in September.  The report also says that the Year of the Tiger will be a good year for metals since the tiger is associated with metal and some people call this the Year of the Metal Tiger. 

Regardless of your opinion of the Chinese Zodiac, some things about China remain indisputable. Among these are: 

The Shanghai Composite Index was up more than 60% for 2009.

The Shanghai Composite recently broke below its 200 day moving average.

China is now the second largest economy in the world, having recently overtaken Japan.

China rattled world stock markets on Friday by raising their bank reserve rates and there’s increasing concern about a growing real estate bubble.

In the chart above you can see that the Shanghai Composite is below its 200 Day Moving Average and its 50 Day Moving Average but has just resumed an upturn and is trying to break above its 200 Day Average.  Often regarded as a “canary in the coal mine”  or leading indicator by experts, the Shanghai Composite is one of the indicators I keep a steady eye on. 

For investors wanting to play with the dragon, ETFs offer several opportunities. 

One of the most widely held China ETFs is (FXI), the iShares FTSE/Xinhua China 25 Index Fund. It’s designed to track the China 25 Index and its top holdings include China Mobile, China Construction Bank and PetroChina.

 

 In the chart above, we can see that (FXI) has broken below both its 50 and 200 Day Moving Average and so would be considered to be in at least a short term bear market. 

Other bullish funds are (GXC) the SPDR S&P China ETF and (HAO), the Claymore/Alpha Small Cap Fund. 

And if you believe that the Year of the Tiger will be a bear, (FXP), the ProShares UltraShort FTSE/Xinhua China 25 will give you double leveraged inverse exposure to the China 25 Index, effectively allowing you to “short” the Chinese market. 

So whatever your orientation is, I wish you “Gung Hay Fat Choy” which is a traditional Chinese New Year’s greeting that’s loosely translated as, “Have a prosperous and good year!”

-Written By John Nyaradi From Wall Street Sector Selector 

 

 

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