ETF Expert

Last week, I pointed out that prominent China ETFs had been decoupling from one another; the one-time standout, iShares China 25 Index (FXI) had been moving lower whereas Claymore China Small Cap (HAO) and PowerShares Golden Dragon Halter China (PGJ) had each been hitting higher highs.

(Review “China ETFs Are Decoupling From Each Other!“)

In that feature, I suggested that the mighty iShares China 25 Index (FXI) might need to hold above $41.28. Otherwise, it would be establishing a pattern of lower lows. As I type this feature at the half-way mark of trading, FXI is stuck at $41.

In the chart below, it is easy to see the shift in FXI’s progress since March of 2009… the last time that the price of FXI was hitting lower lows in a long-term downtrend. Specifically, in each consecutive month since March… April, May, June and so forth… FXI had hit new ”higher highs.” This continued through hitting its recent 52-week pinnacle in November (i.e., adjusted price of $46.10).

Since that time, FXI hit a lower adjusted price ($41.28) for December… a price lower than at any point in the month of November. Similarly, if FXI closes below $41.28 here in January, it will have set a lower price than at any point in the previous month of December.   (Update: FXI closed at $41.14.)

To further illustrate, one can see that… in spite of FXI’s inherent volatility… FXI did not breach its 100-Day trendline from March of 2009 through December of 09; rather, it bounced off the resistance of the 100-Day simple moving average.

Now this China proxy is well below a 50-Day and the 100-Day MA. It’s also 11% off its November high.

Is it any wonder that the world is getting nervous? China has raised rates on short-term bills and it has boosted the amount that banks must hold in reserve. Moreover, the ETF investing public is becoming more antsy about the risk of China reining in speculative borrowers. (Read more about China ETF Risk Alerts here.)

Before over-reacting, however, it should be noted that neither Claymore China Small Cap (HAO) nor PowerShares Golden Dragon Halter China (PGJ) are down quite as much as FXI on 1/20/10. The reason? FXI is more heavily weighted towards the financial companies that might be impacted by restrictions in China banking/lending policies.

If you’d like to learn more about ETF investing… then tune into “In the Money With Gary Gordon.” You can listen to the show “LIVE”, via podcast or on your iPod. If you’d like to subscribe to ETF Risk Alert, click here.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company does not receive compensation from any of the fund providers covered in this feature. Moreover, the commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

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