Back on October 10, 2007, in a post with the title When to Short China? I predicted:
Eventually, there will come a time when you will look back and say to yourself, “Why wasn’t I short China? It was such a no-brainer…”
In the 13 ½ months since that post, the iShares FTSE/Xinhua China 25 Index (FXI) has fallen from a split-adjusted 63 to 24 and change, a loss of about 62%.
Now predicting tops and bottoms is always a dangerous parlor game, but investors should always be wary of potentially important tops and bottoms.
Returning to China, notE that in the chart below, last week’s low in the FXI was about 5% higher than the October low, with Friday’s rebound accompanied by record volume. I would not likely confirm a rally in FXI until it closed over 28 or so, but the signs of a bottom look more promising in the FXI than they do in many corners of the U.S. equity markets.
There is considerable disagreement about how much of the $586 billion Chinese stimulus package accounts for new spending and how much references projects that had already been committed to, but were relabeled to fit under the stimulus umbrella. There is also a broad range of opinions around the amount the Chinese economy has slowed, with current estimates pointing to economic growth of 7% at the high end to perhaps the possibility that the Chinese economy might be shrinking. As additional light is shed on these issues, expect the FXI to lurch dramatically up and down. Do not be surprised, however, if the October 27th low of 19.35 turns out to be the bottom.