China ETFs Could See More Declines
The iShares FTSE China 25 Index Fund (NYSE: FXI), the largest and most heavily traded China ETF, is up 2.1 percent on Wednesday after Chinese stocks shook of negative news out of Cyprus to move higher. Overnight, the Shanghai Composite surged nearly 2.7 percent to 2,317.37 in what was the index's best one-day performance in weeks.
Investors may not want to get too comfortable with the notion of an extended rally in Chinese stocks. Technical analyst Ray Barros of Ray Barros Trading Group told CNBC the Shanghai Composite could plunge 15 percent over the next two months.
At 2317, the benchmark mainland China index is well below its most recent peak of 2,443 back down to the 1,900-1,950 level, Barros told CNBC. Barros added the rally in Chinese equities that started in late 2012 that lasted through the early part of this year was merely a bear market rally that is already unraveling, CNBC reported.
That is no doubt frustrating to investors that saw FXI surge nearly 11 percent from early December through late January, but from January 28 through March 19, the ETF tumbled 11.3 percent.
Barros' technical outlook on China jibes with the fundamental outlook cast out by J.P. Morgan earlier this week. On Monday, the bank downgraded its view of Chinese stocks to Underweight from Neutral.
Growth momentum is now slowing with policy response constrained; a nasty combination," said Adrian Mowat, the bank's chief Asia and emerging markets strategist," said in a research note, Bloomberg reported.
As for FXI, the $6.82 billion ETF, which does not track the Shanghai Composite, has potential technical problems of its own. As Trade With Pete notes, two FXI holdings are close to making crosses, the technical situation where a shorter-term moving average such as the 50-day line dips below a longer-term moving average such as the 200-day line.
Those stocks are Cnooc (NYSE: CEO), China's largest offshore oil exploration firm, and China Unicom (NYSE: CHU). Cnooc is FXI's ninth-largest holding and combines with China Unicom for about 6.5 percent of FXI's weight.
FXI itself already resides below its 20- and 50-day moving averages and trades just two percent above its 200-day line.
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