The recent correction in Chinese stocks and exchange traded funds (ETFs) have not been pretty. Lately most China investments seemed like a no-lose, sure thing, however, Mark Arbeter of BusinessWeek compares the iShares FTSE/Xinhua China 25 Index Fund (FXI) and other China-focused ETFs to the dot com boom. His words of advise: "Don’t be the last one out the door." The two major concerns are the chart has gone asymptomatic and trading volume has exploded. Second, investors don’t really know anything about the companies in FXI. Hopefully they are large companies with a track record.

Richard Shaw of Seeking Alpha also states there isn’t a lot of fundamental data to review about FXI but the macroeconomic trends along with the technical factors are not good. The rate of change of China valuation is being questioned as is China’s level of valuation.

Regardless, the recent correction in Chinese ETFs are a great example of why investors need to have a set stop-loss point for every holding. As of last Friday’s close, FXI was more than 8% off its most recent high, which generated a sell signal for the clients under our management.


The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.