Thursday, November 1, 2007

What’s in the FXI?

Now that the iShares FTSE/Xinhua China 25 Index (ticker FXI) is regularly trading 5 million or so shares per day, it would be fairly easy for a trader to make a living trading just this one basket of China stocks. It has volatility, it has options (check out the new Morningstar options data if you haven’t already), and it will soon have a 2x inverse ETF (ticker FXP) if you want to play the other side at twice the speed.

But what is in this index? Note that the China internet stocks (BIDU, FMCN, SOHU, SINA, etc.) and the China solar stocks (LDK, JASO, TSL, YGE, etc.), both recent market darlings, are conspicuously absent from the list. I have included an October 31, 2007 snapshot of the components of the FXI, with all quotes from the Hong Kong Stock Exchange:

Ten companies included in the FXI are also traded on the NYSE with ADRs. For easy reference I offer links to a Yahoo Finance version of that list in an intra-day format and also in the more detailed summary format. At the moment, all ten companies on this list are trading down 2-6% for the day, while the FXI is down 3.4% after hitting a new high of 219.56 during yesterday’s trading session.

When the FXP arrives, I will probably give it a test drive, but not until there is more convincing evidence that the FXI has put in at least a short-term top. At that point, the volume in the FXP may also provide some interesting clues about investor sentiment, specifically the breadth and depth of concern about a bubble in the Chinese stock market. For now at least, there is no reason to believe that the China trend is going to end soon and the best place continues to be on the long side.


Anonymous said...

Hello Bill,

A few posts below you replied to my question about the intraday VIX high at 24.15 exactly matching that of 10-19's VIX as being significant or not. Thank you for sharing your thoughts.

Another observation about yesterday's 11-01 selloff has to do with the degree of change in the VIX. One rule I use is that when the Volatity Index (VIX) rises by 24% or more from the previous day,.. this usually indicates a strongly oversold market and leads to a near term rally.

On Fri 10-19 the VIX was up by 24% from the previous day's close which was followed by a $3 upward move in the SPY on the following Monday and Tuesday.

Note that yesterday on 11-01, the VIX rose 25.36% to close at 23.21. Again, we have a rise in excess of 24%,..this should be a BUY signal.

Just wanted to share this with you.
Appreciate any thoughts you have.

Best Regards, Jim P.

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