{"id":33914,"date":"2012-11-30T09:55:33","date_gmt":"2012-11-30T14:55:33","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/11\/its-time-to-buy-china\/"},"modified":"2012-11-30T09:55:33","modified_gmt":"2012-11-30T14:55:33","slug":"its-time-to-buy-china","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/11\/30\/its-time-to-buy-china\/","title":{"rendered":"It\u2019s Time to Buy China"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

The past two years have been volatile for investors in virtually every market, but they have been particularly unkind to investors in China.\u00a0 Chinese stocks, as measured by the iShares FTSE China 25 Index ETF (NYSE:$<\/span>FXI<\/a>)<\/strong> spent most of 2011 and 2012 in a downtrend, though in the past two months they have shown signs of life.<\/p>\n

\"\"<\/a><\/p>\n

Should investors take this rally seriously?\u00a0 Or is it yet another fake out destined to burn them?<\/p>\n

Right now, the upside potential in China far outweighs the downside.\u00a0 China is a buy.<\/p>\n

You\u2019re probably raising your eyebrow right now, but hear me out.\u00a0 China is one of the cheapest markets in the world right now.\u00a0 Chinese stocks trade for just 7 times earnings, less than half the valuation of American stocks as measured by the S&P 500.\u00a0 And at the same time, sentiment towards China is downright horrid.\u00a0 It\u2019s hard to find anyone who is actually bullish<\/em> on China these days.\u00a0 A Google search for \u201cChina\u201d and \u201chard landing\u201d returned over 3 million hits.<\/p>\n

I know, I know.\u00a0 You can\u2019t take Chinese earnings seriously because they cook their books.\u00a0 Fair enough.\u00a0 I actually agree that you have to take most Chinese data releases with a grain of salt.\u00a0 But many of FXI\u2019s core holdings\u2014such as China Mobile (NYSE:$<\/span>CHL<\/a>), <\/strong>the largest mobile phone company in the world by subscribers\u2014trade in the United States as ADRs and meet international reporting standards.\u00a0 And when they are priced as cheaply as they are today, there is certainly margin for error if earnings reports are a little on the aggressive side.<\/p>\n

Furthermore, the macro picture in China\u2014which was never nearly as bad as the media hysteria would have suggested\u2014appears to be stabilizing.\u00a0 The China Manufacturing Purchasing Managers Index improved in November\u2014the first improvement in 13 months\u2014and profit among Chinese industrial companies rose 21% last month<\/a>.<\/p>\n

China is still far too dependent on capital spending and exports; for the country to have anything resembling a balanced economy it needs to see the consumer sector playing a more prominent role.\u00a0 But for now, I am comfortable investing in China.<\/p>\n

Buy FXI at market.\u00a0 But use a stop loss or a trailing stop to protect yourself in the even that investors get spooked again and send shares lower.\u00a0 While I am bullish on China at this time, a Eurozone \u201cblow up\u201d or a turn for the worse here in the U.S. could spill over into the Chinese market.\u00a0 A 15-20% trailing stop should be sufficient for now.<\/p>\n

If investors \u201crediscover\u201d China, we could see 50-100% gains over the next 12-24 months if recent history is any guide.<\/p>\n

Sizemore Capital has no positions in the stocks mentioned. This article first appeared on TraderPlanet<\/a>.<\/em><\/p>\n

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The post It\u2019s Time to Buy China<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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