Which China ETF To Choose Once The Shanghai Exchange Breaks Out?

We wrote recently that China’s stock market is looking increasingly attractive (read Watch China Closely As It Is Close To Breaking Out).

China’s collapse of last year is clearly over, and the Shanghai Stock Exchange is building a base at this point, with a clear pattern of higher lows since the February 2016 lows.

Now there is one thing we should stress: media and gurus are forecasting a continuation of China’s collapse, for whatever reason. Sentiment appears to be negative, for whatever reason. But smart investors do not care, on the contrary. A negative sentiment with rising prices means that the crowd is not looking to buy, which is the perfect setup for a bull market.

We believe China is about to enter another bull market soon, at least that is what we derive from examining sentiment combined with the Shanghai Exchange price chart.

The key question is: which financial instrument should investors choose once the Shanghai Exchange index breaks out (3150 is the breakout level in our view)? In this article, we discuss the two most appealing ETF’s for riding the next China bull market. We compared ten different China ETF’s, but only two of them look great: FXI and MCHI.

First, MCHI looks very attractive because of two reasons. First, it rose stronger than our benchmark which is the Shanghai Exchange. Second, as the 2016 rally took place, volume was on the rise as well.

The other ETF which outperformed the Shanghai Exchange is FXI, representing the largest companies in China’s stock market. Admittedly, FXI is our top favorite at this point, because volume is really strong, but, more importantly, the risk level is very low. FXI represents large caps, which, by definition, always carry less risk.