Believe It: A Breakout is Possible for Chinese Stocks

ASHR launched in November 2013 and already had nearly $196 million in assets as of Feb. 18. The ETF, the first to offer non-derivatives access to China’s A-shares markets, was so successful out of the gate that Deutsche Asset & Wealth Management lowered the fund’s fees last month. [Deutsche Lowers Fees on A-Shares ETF]

Although ASHR and PEK are not direct Shanghai Composite proxies (ASHR tracks the CSI 300 Index), the ETFs would merit consideration assuming the Shanghai Composite breaks out.

“Over the past three years, the Shanghai Composite Index has traded within the confines of a relatively steep downward sloping trend channel. Over the past month, the Shanghai Composite has worked its way higher to where it is testing resistance (red line) for the 7th time since early 2011,” according to Chart of the Day.

Adding to the potential allure of ASHR and PEK if Chinese equities rebound and notch legitimate rallies is how off-guard some investors would be caught by the sudden ebullience.

“The timing for a breakout like this would be pretty perfect – it’s literally the last thing anyone expects and you couldn’t find a China Bull at the Guangdong Rodeo these days,” says Josh Brown on The Reformed Broker.

Tom Lydon’s clients own shares of EEM.