When the Dragon whips its tail, you better be prepared to jump on for the ride.
That’s some advice I received several years ago from a colleague who also happens to be one of the foremost experts on investing in China, and the concept has stayed with me ever since. Now, so far in 2013, the Dragon hasn’t been reporting the kind of economic data that’s caused its tail to whip higher. In fact, the benchmark iShares FTSE China 25 Index (FXI), an ETF pegged to the biggest companies traded in China, has seen a decline of more than 10% year to date.
Yet over the past week, the data out of China has been decidedly better, and that’s sent FXI shares surging nearly 5% over the past five trading sessions. As of this writing (midday Monday) FXI shares are up another 2.3%.
The first catalyst for the recent buying in FXI started on August 31, when we saw the nation’s Purchasing Managers’ Index, or PMI, come in at a reading of 51 for August. That metric was up from 50.3 in July, and it indicates that China’s economy is getting stronger.
This morning we got the news that world’s second-biggest economy saw export growth of 7.2% in August, well above the consensus forecast for a 6% increase in exports. Moreover, the country also reported that inflation held steady in August, and that’s another positive data point for the Dragon that traders love.
The price action of late in FXI now has pushed the fund up through its 200-day moving average, a significant and very bullish technical sign of more upside to come in the shares.
If you are looking for a sector that’s moving higher on strong economic data, as well as a sector with the potential for a big run higher over the next several months, then riding the Dragon’s bullish tail with FXI will, I believe, be a great way to make a 15-20% profit by the end of the year.
At the time of publication, Jim Woods had no positions in any of the securities mentioned.