CIMBC50: A ticket to ride the Chinese equity recovery

Over the past 1 year, one market which had performed very well is India. The Bombay Stock Exchange 30 Sensex Index ("BSE") has rallied from 20000 at the beginning of the year to 27000 today. This rally followed the breakout of the horizontal resistance at 20000. See Chart 1 & 2 below.


Chart 1: BSE's weekly chart as at Nov 14, 2014 (Source: Stockcharts)


Chart 2: BSE's monthly chart as at Nov 14, 2014 (Source: Yahoo Finance)

In July/August, the Shanghai Stock Exchange Composite Index ("SSEC")broke above its downtrend line at 2150. It has since risen to about 2400. See Chart 3.


Chart 3: SSEC's weekly chart as at Nov 14, 2014 (Source: Stockcharts)

If you look at Chart 4, we can see that SSEChas been in a mega uptrend since early 1990s. That uptrend had corrected back 3 times (R-R, R1-R1 & R2-R2). In the past 2 breakout above the intervening downtrend (R-R & R1-R1), the index had entered into long rally upward. This current breakout could be a precursor to another long rally.


Chart 4: SSEC's monthly chart as at Nov 14, 2014 (Source: Yahoo Finance)

There are a few way that we play this rally in SSEC. Investing directly in Chinese stocks is an obvious choice but there is too much hassle. The easier alternative is to invest in a basket of Chinese stocks via mutual funds or ETFs. On Bursa Malaysia, we have an ETF set up & managed by CIMB which is dedicated to the Chinese stocks. The ETF is CIMBC50 which invests in the top 50 stocks listed on HKEX. (Note: I made a mistake of naming it CIMBC25 earlier. The name has been changed from CIMBC25 to CIMBC50 in September this year when the benchmark index was changed from FTSE China 25 index to FTSE China 50 index. For more, go to here.)

CIMBC50 has been trending higher in the past 3 years. The price movement resembles an irregular upward channel. An upside breakout of the line connecting the peaks at RM1.12 could signal the beginning of a strong rally in CIMBC25. See Chart 5.


 Chart 5: CIMBC50's weekly chart as at Nov 14, 2014 (Source: Share Investors)

However, the immediate outlook for CIMBC50 is mildly negative, due to weak sentiment in the local bourse. It is likely that it may drift lower, potentially testing its RM1.00 support. See Chart 6.


 Chart 6: CIMBC50's weekly chart as at Nov 14, 2014 (Source: Tradesignum)

Based on the bullish breakout for SSEC, I believe that Chinese equity is poised to go higher. One of the ways to ride on the Chinese bulls is to invest in CIMBC50.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, CIMBC50.