The iShares FTSE China 25 Index Fund (NYSE:
), the largest and most heavily traded China ETF, is up 2.1
percent on Wednesday after Chinese stocks shook of negative news
out of Cyprus to move higher. Overnight, the Shanghai Composite
surged nearly 2.7 percent to 2,317.37 in what was the index's
best one-day performance in weeks.
Investors may not want to get too comfortable with the notion
of an extended rally in Chinese stocks. Technical analyst Ray
Barros of Ray Barros Trading Group
CNBC the Shanghai Composite could plunge 15 percent over the next
At 2317, the benchmark mainland China index is well below its
most recent peak of 2,443 back down to the 1,900-1,950 level,
Barros told CNBC. Barros added the rally in Chinese equities that
started in late 2012 that lasted through the early part of this
year was merely a bear market rally that is already unraveling,
That is no doubt frustrating to investors that saw FXI surge
nearly 11 percent from early December through late January, but
from January 28 through March 19, the ETF tumbled 11.3
Barros' technical outlook on China jibes with the fundamental
outlook cast out by J.P. Morgan earlier this week. On Monday, the
bank downgraded its view of
Chinese stocks to Underweight from Neutral
Growth momentum is now slowing with policy response
constrained; a nasty combination," said Adrian Mowat, the bank's
chief Asia and emerging markets strategist," said in a research
As for FXI, the $6.82 billion ETF, which does not track the
Shanghai Composite, has potential technical problems of its own.
Trade With Pete notes
, two FXI holdings are close to making crosses, the technical
situation where a shorter-term moving average such as the 50-day
line dips below a longer-term moving average such as the 200-day
Those stocks are Cnooc (NYSE:
), China's largest offshore oil exploration firm, and China
). Cnooc is FXI's ninth-largest holding and combines with China
Unicom for about 6.5 percent of FXI's weight.
FXI itself already resides below its 20- and 50-day moving
averages and trades just two percent above its 200-day line.
For more on
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