Skip to main content

China ETF stuck in channel or about to break out?

The iShares FTSE/Xinhua China 25 Index ETF (FXI) has been in a downtrend for months. In the last month or so it has bounced off a support level in the $140 area several times. The ETF has finally begun to turn up. On Tuesday it came right up against its downward sloping trend line. On Wednesday it fell back within the channel (see chart below).

Chart of FXI
Are we seeing merely technical trading or are there fundamental developments in the Chinese economy that will drive the ETF one way or the other?

In reviewing some of the recent news out of China there are a couple of developments that are worth discussing.


China's consumer price index was reported up 7.1% in January, the highest since September 1996 and well above December's 6.5%. This was partially due to the severe winter storms that disrupted economic activity, caused crop damage and generally brought parts of the country to a standstill. Some analysts that this high level will not last and that China will see a moderation in prices.

On the other hand, Chinese authorities have placed price caps on certain categories of food (food prices climbed 18.2%) and it is well known that the government subsidizes oil imports in order to keep prices at the pump artificially low. Without these government induced distortions, would the CPI have been even higher?

With prices rising, it increases the likelihood that China will allow its currency to appreciate more rapidly. This is something the U.S. has been asking China to do but the Chinese government has been moving slowly in order to avoid making Chinese goods less competitive abroad.

Interest Rate Outlook

With inflation this high and bank accounts yielding only about 4%, there are expectations that the central banks will be raising rates. In the current state of affairs, depositors are getting a negative rate of return compared to inflation. With the standard weapon for fighting inflation being an increase in interest rates, we will almost certainly see a tightening in China this year.

To help cool the economy, the Chinese government supposedly set limits on lending. It appears that Chinese banks have ignored the limits. Lending continues at strong levels and plenty of liquidity is available for real estate and industrial borrowers.

Economic Activity

Last week it was reported that China's trade surplus in January exceeded analyst expectations. There have been many anecdotal stories of how Chinese exporters are already suffering as a result of the U.S. slowdown. These numbers, however, paint a different picture. In December, we saw the surplus come down a bit but now it seems to be right back at the strong levels China has become used to seeing. And this is despite the high prices of oil which inflate the import numbers.

We have pointed out in the past that China is developing a strong domestic market and is seeing growing trade among Asian neighbors and other emerging nations. It appears that, so far at least, China is protected by some degree of decoupling.


The Chinese economy continues to roar along. If things don't get any worse in the U.S.; ie, we don't fall into a deep recession, it looks like China can escape without a major slowdown.

As always with China, the government is the wild card. If they allow the yuan to appreciate, if they raise rates aggressively, it could throw Chinese stocks into turmoil. After the extremely strong gains of last year, a case can still be made that Chinese stocks are overvalued and vulnerable.

As for FXI, it has been trapped in this chart pattern since last October. We'll need to keep a close watch as this can't continue forever.


Anonymous said…
Thank you for the information you have provided and it is very useful. we will see some more information related to this topic.

What is 'Recession Proof'?

You can almost hear the wallets snapping shut. Folks are cutting back on their spending every way they can. According to those who know, we are either in a recession, or are about to be.

I would hate to be trying to sell
real estate or new cars right now. Talk about hitting your head against the wall. Ouch!

That got me to thinking of what businesses make sense during a recession. Certainly health care does. Baby boomers are going to need every kind of health care imaginable. For all I know, economic bad times makes
people sick too.

Other types of businesses that should be recession proof include vital home repairs, like plumbing, electrical, and roofing. Folks can't put off fixing a clogged toilet or a leaking roof just because they're a little short on cash.

And you know what they say about death and A well-run funeral home or a tax consulting business shouldn't be hurt by an economic downturn. But all these jobs require training, and even certification. And that takes time. By the time you've learned one of these trades, the recession may well be over. That got me to thinking about one business that's truly recession-proof, and you can get started almost immediately: Day Trading.

Day Trading refers to the buying and selling of stocks within the same trading day. I know what you're thinking: how can a day trader be successful when the stock market is down, day after day? Well, day traders profit from
volatility - when there are big swings in stock prices, there is money to be made.

It used to be that Day Trading was only done by financial institutions with access to technology and information. Now, almost anyone with Internet access can become a day trader, if they know what to do.

Manny Backus

P.S. Learn a 'sleazy' trading technique used by a select group of traders to bank lucrative, net stock returns of $223.00, $476.10, $790.25 or more -- not in days or weeks -- but in one easy hour or less! Click here:

Popular posts from this blog

Running TradeRadar on Windows 7 and Windows 8

Development of the original TradeRadar Stock Inspector software was begun back in the days before Windows 7 and Windows 8 were available.

As these newer versions of Windows have become more popular, we have heard from some users that they are having problems installing and running TradeRadar on their newer PCs.

The good news is that TradeRadar will work just fine on Windows 7 and Windows 8. All you have to do is adjust the Windows Compatibility Settings to ensure TradeRadar runs as intended.

It is recommended that you can apply Compatibility Settings when running the initial installation; however, it is also possible to apply Compatibility Settings after the program has been installed.

Prior to installation
After downloading the install program, go to the folder where you have stored the TradeRadarStkInsp_7_Setup.exe or TradeRadarStkInsp_7_PRO_Setup.exe executable. Right-click on the executable file and select Properties. Click the Compatibility tab. Adjust the Compatibility mode to …

Alert HQ has moved!

End of an era!

This site was started way back in 2006/2007 to showcase my blog posts and the Alert HQ buy signals and sell signals. Alert HQ grew to include other kinds of stock alerts including Swing Signals, Trend Busters, Trend Leaders, Cash Flow Kings and more.

In the meantime, I built a sister site, and I started using some of the same Alert HQ content over there. As a result, I am discontinuing the Alert HQ data here at

The good news, however, is that all the Alert HQ signals and stock screens are still completely free. In addition, the pages have been enhanced so that you can hover over a stock symbol and a small chart will pop up so you can get a quick look at the stock's recent price action. If you click on a symbol it will take you to a page with plenty of financial and technical analysis information (still free!) as well as a larger chart that you can play with in terms of adding or deleting indicators, moving averages, etc.

Click …

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:

Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:

Results here were actually quite good and, to make things even better, the previous month was revised upward.