ETF Trends
ETF Trends

China and its exchange traded funds (ETFs) might occasionally bring back memories of that dramatic high school relationship: volatile and full of high highs and low lows.

Just look at the 2007 performance of the iShares MSCI Xinhua/China 25 Index (FXI) vs. right now: it ended last year up 54.8%. So far this year, it’s down 15.7% and is 35% off its high. The fund is still up 600% in five years, though.

Jim Jubak for MSN Finance says that China still comes with big risks. The economy is growing quickly – maybe too quickly. The money supply in the country is growing at a faster rate than the economy, a prime situation for inflation. Another risk, he says, comes about because China’s economic and financial systems differ so much from our own. Accounting isn’t easy.

The upside of the returns comes with a lot of risk but there are ways to cut down the risk as well as help investors find the source of the risk.

  1. If you own Chinese securities, hedging some of you risk with a short ETF is a good idea. ProShares Ultrashort China (FXP) is a tool to help catch the downside. China’s economic risk is extreme, with inflation and interest rates threatening to dampen the hot spell, but this way you’ll have bases covered.
  2. Stay aware of the risks. It can help give insight into when it may be time to bail.

Joanne Von Alroth for Investor’s Business Daily says that some analysts feel that it might not be time to give up on China just yet. Many of China’s woes have stemmed from a double whammy of a faltering U.S. economy and the most severe snowstorm the country has seen in 50 years. Factories shut down, transportation was halted and power was out for days.

Those analysts say to give China a break – it’s not fair to judge a country’s overall economy on the basis of temporary, short-term occurrences. Keep an eye on the country and watch how they deal with recovery from the weather disaster and how the U.S. economy continues to affect it.


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.