One of the worst-performing emerging market ETFs this year, iShares FTSE China 25 (NYSEArca: FXI), rebounded more than 2% in early U.S. trading Wednesday after a noted technical analyst predicted a strong rally in Chinese stocks.
The China ETF is down about 10% year to date after the government unveiled new measures designed to cool property prices. Investors are also worried about a potential slowdown in the world’s second-largest economy as well as more central-bank tightening measures.
Earlier this week, JP Morgan (NYSE: JPM) cut its view on China to underweight and recommended bearish bets against the country’s largest banks. [China Downgraded by JP Morgan After ETF Falls 12%]
However, the Shanghai Composite on Wednesday rallied nearly 3% for its largest gain in over two months after Tom DeMark at Market Studies LLC predicted the index will rally as much as 28% by September, Bloomberg News reports.
In late 2012, DeMark accurately forecasted a rebound in China’s equity market. At the time, he said everyone was negative on Chinese stocks and the bears were exhausted. [ETFs to Access China’s New Growth Phase]
Now, Demark says China will continue its climb following the recent pullback.
“Recent declines have already priced in investors’ more pessimistic view about economic growth,” said Li Jun, a strategist at Central China Securities Co, in the Bloomberg story. “Given that stocks are still not expensive, a rebound is justified.”
DeMark, who specializes in turning points in markets, also correctly predicted a retreat in Chinese stocks last month. We “are identifying a low-risk entry zone just beneath today’s low of the Shanghai Composite which should be a bottom prior to the resumption of the advance,” DeMark said this week, according to the report.
FXI, the China, has fallen below its 200-day exponential moving average.
iShares FTSE China 25
