“Warren Buffett recently said that American ingenuity will spark an impressive recovery here in the United States. And I remember that you used to discuss ETFs that might benefit from Mr. Buffett’s investment allocation. But lately, you’ve been talking about large and small China ETFs, even China real estate ETFs. If you had to invest in one or the other, would you rather invest in China ETFs or U.S. ETFs?”
My first reaction was to defensively explain the value of diversifying. After all, I am not exclusively investing in foreign markets alone.
But if I had to chose? What if I had to chose only one country? That’s a “Sophie’s Choice” ultimatum for a U.S. citizen who has also lived in Hong Kong and Taiwan.
In spite of all the knockdowns to the canvas, it’s hard to dismiss the entrepreneurial spirit of American citizens. And I don’t find myself sharing Jackie Chan’s feelings about the benefits of restraining freedom. The U.S. may still boast more freedoms than anywhere on Planet Earth.
On the flip side, in the late 80s, with the 87 stock crash, the Savings and Loan blow-up, and the ensuing tax increases, I found myself gravitating towards Asia. Indeed, I even looked at the protests in Tianmen Square as a sign that China was clearly going to be the next great economic superpower.
Yet it was America’s leadership in technology that helped it thrive throughout the 90s. And it was China’s uniquely slow, quasi-capitalism that seemed to keep it from making a successful push to the front of the world stage until the 21st century. Simply put, it looks as though I was a decade or more “early on the call.”
Nevertheless, none of that really matters right now. Which “child” would I let live and which “child” would I be willing to let be taken away?
With investing, you have to cut your emotional cord entirely. So with this hypothetical exercise that doesn’t allow me the joys of diversification, I will turn to several facts. For example, I can look at price movement and other nominal data.
|U.S. ETFs Versus China ETFs|
|% Above/Below 200 Day||%Below October 2007 High|
|S&P 500 SPDR Trust (SPY)||-6.74%||-38.50%|
|iShares FTSE China 25 Fund (FXI)||9.84%||-50.00%|
|iShares Russell 2000 Small (IWM)||-8.52%||-42.50%|
|Claymore China Small Cap (HAO)||31.50%||N/A|
Technical price movement favors China… both with regard to the large-cap and small-cap space. FXI and HAO are both considered to be in long-term uptrends, whereas SPY and IWM are still both mired in long-term downtrends with prices below 200-day moving averages.