China is on the comeback trail.
Wednesday night, we received yet another data point that confirms this thesis, a thesis I told you about back on Dec. 18 when I recommended you get in on the China trade with the iShares FTSE China 25 Index (NYSE:FXI). Since then, FXI is up nearly 6%, and I suspect there is much more upside to come.
Now, the latest metric from China comes to us via the HSBC flash purchasing managers’ index (PMI). This closely followed number rose to 51.9 in January, the highest since January 2011. The key point here is both the rising trend of the flash PMI, and also the fact that the reading is above the 50 level, confirms accelerating growth in the nation’s manufacturing sector.
The HSBC survey tells us that Chinese manufacturers received more foreign orders in January but, more importantly, it also tells us that there was strong growth in local manufacturing orders. I say more importantly because from a trading perspective we can take advantage of the rebound in China’s local economy with an exchange-traded fund (ETF) that’s filled with numerous companies that cater to China’s burgeoning domestic market.
The ETF I like here is the Global X China Consumer (NYSE:CHIQ). This fund holds small-cap growth companies that cater to domestic consumption, and that also happen to be non state owned. The fund also holds many small-cap stocks from the consumer cyclical and non-cyclical sectors.
This fund has been on a roll for the past three months, rising more than 10% since bouncing off its 200-day moving average in mid-November.
I suspect that the latest bounce in CHIQ will continue, especially as more and more positive economic numbers come rolling in to confirm the China rebound thesis.
Traders looking to ride this China wave should buy CHIQ at the market, with the anticipation of a 10%-15% climb over the next couple of months, if not sooner. To protect your position from any significant loss, I suggest placing a stop-loss around $14, which is right between the 50- and 200-day moving averages.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.