Several Things Support A Long-Term Bullish Outlook For The China ETF

bull-on-china“According to the Economist, China’s share of the world’s market increased during the recession and it will continue to do so. It has overtaken Germany to become the World’s largest exporter. In “Fear the Dragon”, written January 7, 2010 in the Economist print edition, several things support a long-term bullish outlook for China,” David Allard Reports From Castanet.

Allard Continues “Let’s explore the investment opportunity with FXI-N, iShares Xinhua China 25 ETF, an iShare listed on the New York stock exchange. The iShares FTSE/Xinhua China 25 Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the FTSE/Xinhua China 25 Index. The top sectors in this fund are 45.84% Financials, 16.67% Telecommunications, 13.44% Basic Materials, 12.04% Oil & Gas and 8.93% Industrials”

“The (FXI) has gone from a low of $22 in March 2009 to closing at $44 on Friday Jan 8, 2010. The current price crossed the 50-day and the 100-day moving average in April of 2009 and has had strong support all along, until recently. In December, the current price crossed below the 100-day moving average and then was followed by the 50-day moving average. With the most recent rally MACD (moving average convergence divergence) has turned positive and it looks like the current price is about to cross the 50-day moving average with pretty good relative strength. Technically, it is looking bullish again by these measures,” Allard Reports.

Let’s step back to some of the fundamental support for the future by exploring some of the arguments for and against the case of China. Both exports and imports are increasing in China. According to the Economist article, China is taking an even bigger slice of America’s and the World market. In the first ten months of 2009 America imported 15% less from China than in the same period of 2008, but its imports from the rest of the world fell by 33%, lifting China’s market share to a record 19%. So although America’s trade deficit with China narrowed, China now accounts for almost half of America’s total deficit, up from less than one-third in 2008. Over the ten years to 2008 China’s exports grew by an annual average of 23% in dollar terms, more than twice as fast as world trade. If it continued to expand at this pace, China might grab around one-quarter of world exports within ten years. That would beat America’s 18% share of world exports in the early 1950s, a figure that has since dropped to 8%. China’s exports are likely to grow more slowly over the next decade, as demand in rich economies remains subdued, but its market share will probably continue to creep up. Projections in the IMF’s World Economic Outlook imply that China’s exports will account for 12% of world trade by 2014. In addition, The Economist reported imports have been stronger than its exports, rebounding by 27% in the year to November, when its exports were still falling. America’s exports to China (its third-largest export market) rose by 13% in the year to October, at the same time as its exports to Canada and Mexico (the two countries above China) fell by 14%.

Here are some details on the The iShares FTSE/Xinhua China 25 (FXI) ETF:

The investment (FXI) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the FTSE/Xinhua China 25 index. The fund generally invests at least 90% of assets in securities of the Underlying index and in depositary receipts representing securities of the Underlying index. The Underlying index consists of 25 of the largest and most liquid Chinese companies. It may invest the remainder of assets in securities not included in its Underlying index but which BGFA believes will help the fund track the Underlying index. The fund is nondiversified.

TOP 10 HOLDINGS ( 61.42% OF TOTAL ASSETS)  
 
Company Symbol % Assets
Bank of China Ltd N/A 5.83
China Citic Bank Corporation Limited N/A 4.01
China Construction Bank Corporation N/A 9.11
China Life Insurance Company, Ltd. N/A 8.72
China Merchants Bank Co.,limited N/A 4.47
China Mobile Ltd. N/A 9.27
China Shenhua Energy Company Limited N/A 4.33
CNOOC, Ltd. N/A 3.98
Industrial & Commercial Bank of China N/A 7.35
Ping An Insurance (group) Company Of China, Ltd. N/A 4.35

Chart for iShares FTSE/Xinhua China 25 Index (FXI)

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