China Stock Market: Is A Deeper Sell-Off On The Way?

China's stock market tumbled to three-month lows this week on worries the government will do more to control property price increases and economic data showed economic recovery in the world's second-largest country losing steam.

Trading in the U.S. stock market , iShares FTSE China 25Index Fund ( FXI ) has dropped 3% so far this week while its benchmark, the iSharesMSCI Emerging Markets Index ( EEM ), has slipped 2%.IShares MSCI EAFE Index ( EFA ), tracking developed foreign markets, was up 0.3%.

FXI is down 7% year to date and down 2% from a year ago. EEM is down 3% year to date and 1% in the past year.

High inflation for February on top of weak retail sales and industrial production data released earlier this week is being blamed for scaring away investors. China's consumer price index hit a 10-month high of 3.2% year over year in February. China has set its inflation target at 3.5%.

Retail sales climbed 12.3% in the January-to-February period over the year-ago period, undercutting expectations of a 15% increase and below its historical average of 15.8% since 2010, according to Industrial output rose 9.9% in the January-February period year over year, missing expectations of 10.6%. Industrial output on average surged 13.3% a year from 1990 to 2013, according to Trading Economics.

Whether China can maintain its rapid growth rate is being questioned as the country changes leadership and manufacturers increasingly send work to other countries, says Jim Lowell, chief investment officer at Adviser Investments in Newton, Mass., and chief editor of "Forbes ETF Advisor."

But the Chinese government, in efforts to support economic growth in 2013, is taking measures to stimulate consumer demand, which should benefit corporate sales and earnings.

Chinese stocks have fallen so much, they could be seen as a value play. FXI currently trades at nearly 9 times forward earnings vs. 12 for emerging markets. That's while sporting historical earnings growth of 17% vs. 11% for emerging markets.

Chinese Charts

IShares FTSE China 25, the largest ETF tracking the People's Republic, has fallen 10% from its 52-week high, which is considered a normal correction in an uptrend. It fell below its 50-day moving average five weeks ago, which is bearish. But it's still trading above its longer-term 200-day moving average, indicating a weak uptrend. Its chart currently features a very weak Relative Strength Rating of 34 on a scale of 1 to 99, indicating that it has lagged two-thirds of the market the past 12 months. Its IBD Accumulation/Distribution Rating of E is the lowest possible on an A-to-E scale, showing that institutions are fleeing.Guggenheim China Small Cap ( HAO ) andGuggenheim China Real Estate ( TAO ) have similar chart patterns and IBD Ratings as FXI.

Other China ETFs areSPDR S&P China (GXC) and iSharesMSCI China Index Fund (MCHI).

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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