Wednesday, July 23, 2014

Time For Some China in your Portfolio?

I just read a post by Chris Kimble. He showed this particular graphs, and I find them quite compelling. The first graph shows a purely technical chart, showing that a bullish breakout pattern is forming after a long coiling phase. If it turns bullish, that is quite a good sign for China stocks.


However, technicals are just technicals. One of the metrics that I like looking at is actually rolling performances over a period. Here, he gave a snapshot of the 5 year performance and compared Shanghai to the S&P500. Horrible -38% total returns after 5 years. That's an awful and terrible bear market that it has been through.


One, fine, statistically it looks good that Shanghai would start gaining soon. What else? Well, I have a picture comparing P/E ratios of many of the different market indices. This is taken from the iFast market valuation report posted on FundSuperMart.


Looking at that chart, only 1 major market today is priced cheaper than Shanghai, and that is Russia. So based on this chart, only Russia, Hong Kong and China actually look like the best places to be precisely because they have been the worst places to be.

Personally, I think it's a pretty contrarian play. I am thinking of watching the indices closely and look for a confirm of that breakout, as well as clearing some classical resistance lines. Depending on how it feels to me, I might then decide to take a position.

My vehicle of choice will be the UOB ETF Shanghai Stock Exchange 50 listed on the SGX. Total expense ratio is 0.45% and the fund's base currency is in SGD. Each share is currently trading at $1.45 as of today's close, but the good news is that 1 lot is only 100 shares. That means minimum purchase is just 100 shares for a total of $145 + brokerage charges. That is an amazing deal for such a low capital outlay!

Current bid-ask spread is 2 cents, which translates to about 1.37%, which is not very good. However, I have seen the spread at 1 cent at many times, which makes it 0.68%. In fact, for stocks priced between $1 and $2, you can trade with half cents too, which means it is technically possible to close a trade at 0.34% spread if you can find someone to make the other trade. Volume is pretty good. I dare say that this ETF is the second best SGD offered ETF in terms of liquidity, after the STI ETF.

I sure wish that SGX could convince and advise their ETF providers to create more similar products that will be good for the market. I am thinking of taking up a few lots if it starts to look good to me.

What do you think about China stocks now? And what vehicle would you use to get exposure in China?

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