Thursday, January 31, 2013

We received a report from Bespoke Investment Group last night alerting us that the Chinese market is approaching a “golden cross” where the 50 day moving average of the Shanghai Composite Index is about to cross above its 200 day moving average.  While this indicator has had generally specious results, Bespoke says it has been an accurate predictor of gains in that market.  Quant agrees as our old leader, the iShares FTSE/Xinhua China 25 Index Fund (FXI) has moved back into the top 10 at 7th place this morning.

This fund had great results for us throughout the fall as it gained even as the Chinese market didn't.  Some Hong Kong exposure and currency effects accounted for the disparity.  It began to rank lower as Quant moved to a US focus near year end.  Even though the Bespoke report shows the Shanghai gaining through that time, FXI stalled and is basically flat year to date.  Quant saw the time out coming as the fund dropped as low as 52nd place on January 2nd.  That provides another example where drops in rank like that are not sell signals as this one looks ready to rock again.  That flat performance over the past month leads to a middling Technical Score of 63.1 although the long term is better at 69.4.  Not surprisingly, its Sentiment Score is better at 83 led by a high 99.5 short interest score.  Its fundamentals look nice with Price/Cash Flow and Price/Book readings of 95.4 and 95.9 leading to a healthy Fundamental Score of 72.8.

If the Shanghai Composite completes that golden cross, it could shake out those shorts and spark the next rally in FXI.  That becomes even more plausible with yesterday’s surprising negative US GDP print.  If the US joins Europe in recession there won’t be too many other developed markets to turn to.  China is becoming a developed market and Quant thinks it is going to develop more so in coming months.  We welcome FXI back into the elite ranks and hope it performs as well for as it did the last time.  We welcome you here every day and hope we perform as well, thanks for reading.

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