Monday, October 04, 2010

CIMBX25- an excellent proxy to ride the Chinese Dragon

The current issue of the Edge contained an interesting article by Anna Taing entitled "Recovery Headwinds". She wrote about the US dollar carry trade & the Japanese yen carry trade may create a wall of liquidity heading for emerging markets. This certainly explains the strong performance of equity markets throughout Asia for the past few months. However there is one market that is lagging behind- China. With the good manufacturing numbers, an under-valued currency & a stock market that has corrected sufficiently, I believe a bet on Chinese equity is turning into an irresistible trade.

One way to bet on Chinese equity is to construct a portfolio of top Chinese companies. If you do not have the resources to do, you can just buy CIMB FTSE Xinhua 25. This exchange traded fund (ETF) is constructed to mirror FTSE Xinhua 25 index, which is an index comprising the top 25 Chinese companies that are listed on the Stock Exchange of Hong Kong (go here).

From Chart 1, you can see that FTSE Xinhua 25 (FXI) has been consolidating for the past 15 months & is poised for an upswing.


Chart 1: FXI's weekly chart as at Sept 27, 2010 (Source: Yahoo Finance)

Chart 2 below shows the price chart of CIMBX25. An upside breakout above RM1.05 could be the start of an uptrend in CIMBX25.


Chart 2: CIMBX25's daily chart as at Oct 4, 2010 (Source: Tradesignum)

I believe CIMBX25 is a good long-term investment in Chinese equity. You may accumulate this ETF today and buy more aggressively once it breaks above the RM1.05 level.
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2 comments:

  1. steveMonday, October 04, 2010 10:46:00 PM

    Dear Alex,
    The thing is, when i compare the CIMBX25 graph with graph of HANG SENG INDEX and SHANGHAI INDEX, the CIMBX25 graph looks more compatible with the HANG SENG INDEX graph.
    Is this because the stocks are listed in Hong Kong instead of China although they are China companies?
    If this is the case, then buying this ETF may not be tracking well on the China stock market.
    Please enlighten me.
    Thank you!

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  2. Alex LuTuesday, October 05, 2010 3:48:00 PM

    Hi Steve,

    You may have a valid point after looking through the charts of FXI, HSI, HSCEI and SSECI. The first 3 charts- FTSE Xinhua 25, Hang Seng Index and Hang Seng China Enterprise Index- are indices of Chinese stocks traded in Hong Kong, while SSECI is an index of the Shanghai Stock Exchange Composite Index.

    We can look for another ETF that may track SSECI closely but this ETF would be from another exchange. An example is UETF SSE50 China 100, which is listed on SGX. Presently, there is no ETF listed on our exchange that tracks SSECI.

    Is UETF SSE50 China 100 better than CIMBX25? Not necessary. The rationale for investing in CIMBX25 is similar to UETF SSE50 China 100, which is to gain exposure in Chinese stocks irrespectively of where they are listed.

    For your information, United SSE 50 China ETF comprises the top 50 companies of good standing listed on Shanghai Stock Exchange. For more, go to UETF SSE50 China 100 (JK8) .

    ReplyDelete