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Lighting The Chinese Fire

by Chris Johnson, contributing writer


It looks as if China is starting to reignite growth, as we’ve seen Chinese consumer price index (CPI) and the April trade surplus come in above market expectations, as the country tries to balance keeping up strong economic growth, with keeping inflation in check.  It’s been a tough balancing act, but from abroad, it looks as if China has gotten it right, and initiated a soft landing.  The soft landing has not helped the stock market, but it looks like China is starting to focus a little more on growth now, and if that’s the case, then there are a few ETFs to consider to play this trade.
One ETF to consider is Morgan Stanley China A Share Fund, Inc. (CAF), which tracks the Shanghai Composite A shares in China.  It’s a thinly traded ETF, and has just under $500 million in assets under management.  Brian Kelly, of CNBC’s Fast Money, has been positive on the name, and has recently said that he is buying shares in anticipation of such a move in China.
The other ETF to consider trading is iShares FTSE China 25 Index Fund (FXI).  From Yahoo Finance, the fund is described as: “The investment seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the FTSE China 25 Index.”  It has a 0.72% expense ratio, compared to a 0.74% expense ratio for others in its category.

Trend Analysis:  Both CAF and FXI have been in an uptrend since last week, and are up 5%, and 3% respectively for the year.  If China continues to reignite growth, this could change significantly.

Risk Analysis:   If you like China at these levels, be sure to first determine your risk and protective exit strategy.   As shows, for FXI,  potential problems could arise if it should break the current price point of $43.26, and CAF crosses below $27.66.    Remember to always know your exit strategy!

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