April 23, 2008 at 1:00 pm by Tom Lydon
China’s exchange traded funds (ETFs) are making a big rally today after the government lowered taxes on stock transactions.
The share-trading stamp tax was cut by the government from 0.1% from 0.3%, reports John Spence for Market Watch. The move is viewed as an effort to give the Chinese stock market a shot in the arm. After the cut was made, some of the Chinese ETFs shot up by as much as 6.8% midday.
China’s exchange traded funds (ETFs) have had a rocky year, but could the economy have turned a corner?
Tony Sagami for Money and Markets reports that the country’s gross domestic product for 2007 rose 11.9%, ahead of the 11.4% projections. It’s the fastest growth in 13 years.
China definitely has some political and social obstacles to overcome: its poor environmental and human rights records, the PR disaster of the Beijing Olympic Games and riots in Tibet. But Sagami says that when it comes to the Chinese economy, things are looking up.
Retail sales rose by 20.2% in the first two months of this year. There has also been a 33.8% increase in auto sales, and demand for luxury vehicles is expected to grow between 40%-45% this year. The trade surplus grew by $41 billion in the first quarter, as well, so China isn’t hurting from any U.S. slowdown yet.
Foreign investment seems to be pouring into China, as well: in the first quarter, it increased 61.3%.
Retail sales are up, foreign investment is flowing, and the Chinese trade surplus seems to be unaffected by a U.S. economic slowdown. China is actually the second largest economy when measured by purchasing power.
Sagami suggests that buying China on the dips can be a profitable move for an investor to make. We would wait until this fund crosses above its trend line (200-day moving average) before diving in.
It’s been a rough few months for these funds. Will the tax rate cut help sustain today’s momentum?
- iShares FTSE/Xinhua China 25 Index (FXI), down 12.9% year-to-date
- PowerShares Golden Dragon Halter USX China (PGJ), down 20.2% year-to-date
- SPDR S&P China (GXC), down 15.5% year-to-date
April 23rd, 2008 at 2:56 pm
I am assuming that the moving average referenced in this article is a “Simple” moving average. The simple 200 day MA IS below the average BUT the “exponential” 200 day MA is above it. Compuationally, the EMA is the simplest and most streamlined of all moving average techniques. A significant advantage of this superior computational method is that the EMA is never distorted by old data suddenly dropping out of the calculation. With this in mind, why is the SMA used instead of the EMA in the articles posted on ETFtrends when the EMA is more responsive?
April 23rd, 2008 at 6:51 pm
Shouldn’t you note that PGJ is an index of U S listed companies trading INTO and with China? Unlike FXI which reflects the Chinese “market.”
April 24th, 2008 at 8:55 am
Charles,
Thank you for your excellent comment. We had been using the simple 200 DMA because we’re not giving specific investment advice and just noting trends. The simple 200 DMA is easier for the average investor to understand. However, going forward, we’re going to begin using the EMA. Thanks again!
Richard,
You are correct. We listed this ETF yesterday because it was one of the China-related funds showing strong performance after the tax cuts, going up 4%.
April 24th, 2008 at 9:59 pm
Tom,
Thanks for the reply. Most charting web sites and software calculate MA’s anyway so it should not be a problem for most to calculate EMA’s.
Is there a way to have replies to ETFtrends articles forwarded? I sometimes forget to check back after I post a message. Thanks for your web site and hard work.
April 25th, 2008 at 11:07 am
Charles,
We don’t offer that feature, but we’ll look into it!
Thanks for reading!