China ETFs: Time to Buy?

China’s government recently cut its key lending rate by the most it had in more than a decade. It's also pledged a $580 billion stimulus package. Together, these efforts are supposed to stimulate the Chinese economy.

At least that's what a number of prominent international money managers think. Mullen, chief executive officer at Shanghai-based Emperor Investment Management, believes that prices haven't been this attractive since the Asian financial crisis of 1998. Mullen also maintains that Chinese businesses that serve the Chinese consumer and the mainland's infrastructure will post better earnings growth than anywhere else in the world.

Mark Mobius, executive chairman of Templeton Asset Management, agrees. He recently explained that he is aggressively purchasing consumer discretionary stocks due to a likely consumer "boom" in emerging standouts like China.

It's difficult for me to go back and review what each man may have said about China's future in October, 2007... before major China indexes fell 50%+ from their highs. I do know, however, that both Templeton China ((TACWX) and Emperor China, a private hedge fund, lost 50% in value in 2008... just like the indexes (click on chart below to enlarge).



So call me skeptical if the talk about boundless opportunity isn't a bit self-serving. The reality is, the world is in this thing together. If developed countries worldwide are able to show signs of pulling out of a multi-year recession, the emerging countries will likely appreciate at a faster rate.

More downside risk, yet more upside reward. It all seems to depend upon the elusive "bottom" for the asset class we call, "stock."

We can note, though, that the iShares China 25 Index (FXI) is closing in on its 50-day moving average (click on chart to enlarge). Not since June has it genuinely held above its shorter-term trend. It hasn't been above its long-term 200-day average since January 2008.

If it breaks out above the 50-day, one might wade into to Chinese waters. Yet one will need to be disciplined with a stop-loss percentage in place... to guard against the possibility of rapid deterioration.

(Seeking Alpha, As Quoted)