China FXI (ETF): Beware of Dull Markets!

When too many people are on one side of the boat, it always makes me want to look for another vessel. My real purpose in posting today’s commentary is a simply a disciplinary habit of filing a contrarian sentiment indicator in my mental reference files.

Yesterday, I read a report in Reuters’ news regarding how difficult it is to sell insurance against the event of a financial crisis occurring in China. There seems to be an overwhelming opinion that the Chinese government, backed with an arsenal of $4 trillion in foreign reserves, is not willing to let things come down to a financial crisis, especially of the Lehman moment type. Both investors and traders, alike, often fail to make the disconnect between “willingness” and “ability”. However, ability does not appear to be an issue at the moment as the percentage of Shadow Debt, an ongoing and growing concern for investors and the Chinese government, is relatively manageable as a percentage of its GDP.


china-shadow-debt vs gdp

Still, I have a natural aversion towards the hubris of all men and some degree of skepticism towards China’s economic data disclosures. Therefore, the cautious words of Warren Buffet remain embedded in my investor psyche: ” Be fearful when others are greedy and greedy when others are fearful”.

Until such a moment arrives, I will continue to monitor the price action of the FXI, an exchange traded fund proxy for the FTSE China 25 Index, which at the moment is range bound but converging upon an inflection point over the next few quarters where investors will eventually decide which bias they favor more, bullish or bearish. Lastly, beware of dull markets!



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