Not surprisingly, GXC has been on a roll since the June 24 lows. More recently, this emerging market ETF rose above its 200-day trendline, suggesting that a long-term uptrend may be in its earliest stages.
The month-over-month comparison with U.S. equities is worth a look at as well. The seemingly unstoppable momentum that the S&P 500 SPDR Trust (SPY) boasted year-to-date through July appears to be stalling. In contrast, the previously moribund GXC is riding a wave. Could we be looking at a meaningful rotation out of pricier developed market ETFs into cheaper China ETFs? Does the pick-up in Chinese demand bode well for resources-related ETFs? Does the directionality of future stimulus as well as future economic progress hold more sway than “absolute” data? If so, could China-related investments continue to out-hustle the U.S. in the months ahead?
There’s little doubt that momentum over the last month has shifted from domestic ETFs to foreign ETFs. Europe is getting more attention too. The shift may be a function of a greater comfort with the world’s economic prospects or a greater willingness to take equity risk. Similarly, the “rotation” may be due to the directionality of future stimulus and future profitability abroad. Regardless, the upswing in China ETFs and resources-related ETFs is worth watching.
Gary Gordon is president of Pacific Park Financial, Inc.