Am I crazy to be interested in the Chinese stocks? The Chinese economy is quickly deteriorating. Its housing market is substantially cooling down. Inflation is rampant....You name it. Nothing seems to point to a rosy picture for the Chinese stock market. Indeed, the Shanghai index is among the poorest performers in the world, declining over 10% in the past year. It seems most of the Chinese investors have become very desperate and even given up totally. Well, this is actually the time you may find good opportunities for great values. I cannot say the Chinese stock market has absolutely bottomed but if the Shanghai index can hold above 2000 for a while, then its uptrend seems quite solid. At the moment, the index is fighting against this support level. See below:
If indeed this turns out to be the bottom for the Chinese stock market, what is the best way to trade on this trend? You can look for good individual stocks but I'm not so comfortable with this approach since it is very difficult to know whether the fundamentals of each company published are credible. One better way for me is to buy the ETF for the top 25 Chinese companies' stocks, FXI. Collectively, these stocks reflect the best managed companies in China and actually it has consistently outperformed the Shanghai index (the green line for FXI vs blue line for Shanghai index).
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