While 2013 hasn’t been a great year for China, but it appears to be gaining some steam as FXI head higher. The general theme this year has been U.S. stocks or nothing at all. Nearly any attempts to diversify away from domestic equities you have likely been penalized. The iShares FTSE China ETF (FXI) has been trying to break that trend with its recent rally.
Since January we have watched FXI make lower highs and lower lows as its downtrend protracted. With this recent bout of strength we can see in the chart below that China is back up against falling resistance. If price is able to break above the $35 level then the next target would likely be $37 – the May high.
While FXI is attempting to break its downtrend, is this a market we should even be interested in? As I mentioned above, nearly any attempt to move away from U.S. equities has not been treated with kindness. According to Zacks Investment Research, FXI has a beta of 1.47 against the S&P 500 (SPX). Remember anything with a beta of greater than 1 means it historically is more volatile – moves more than the general market (in this case, the S&P 500). So if FXI is going to introduce me to more risk via volatility then it better be able to deliver on the return side of the equation. With the weakness for the better part of 2013, China has also been underperforming the S&P as we can see in the bottom panel of the chart. As the green line falls it means FXI is rising less or falling more than SPX. In July it broke this downtrend with the iShares China ETF gaining grown on U.S. equities.
Going forward, while I’ll be watching the pure price action and it’s response to the falling trend line but the relative performance is also important. If FXI is in fact able to break above resistance but loses grown in relative strength to the S&P then is the volatility associated with FXI really worth it?
Disclaimer: The information contained in this article should not be construed as investment advice, research, or an offer to buy or sell securities. Everything written here is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned.
