A Look at Chinese Stocks and Geopolitical Tensions
In a May 2023 Barchart article, concerns were raised about the geopolitical tensions between Washington and Beijing that could impact Chinese stocks. While Chinese stocks appear undervalued, the uncertain relationship between the two global powers poses a significant threat to Chinese companies’ trading status on foreign exchanges.
FXI ETF: Key Insights
The iShares China Large-Cap ETF (FXI) currently holds leading Chinese large-cap stocks, with assets under management exceeding $4.24 billion and an average daily trading volume topping 31.25 million shares. While priced around $25.50 per share, FXI carries a 0.74% management fee and boasts top holdings like Alibaba Group (BABA).
FXI Performance Overview
Before the 2008 financial crisis, FXI hit a high of $73.19 in October 2007. Since then, the ETF experienced fluctuations, with a range-bound movement from 2009 to 2022. However, recent trends have shown FXI breaking below this range, signaling a bearish trajectory highlighted by lower highs and lower lows.
Comparing Chinese Stocks to U.S. Market Indices
As Chinese stocks like FXI face downward pressure, U.S. market indices such as QQQ, DIA, and SPY have been hitting record highs. The divergence in performance underscores the preference investors have shown towards U.S. equities over their Chinese counterparts in recent times.
Charlie Munger’s Contrarian View
Charlie Munger, renowned for his value investing philosophy, emphasized the potential long-term prospects of the Chinese economy and the appealing valuations of Chinese companies. Despite geopolitical challenges and economic weaknesses, Munger’s legacy suggests that Chinese stocks might present an attractive investment opportunity.
Future Outlook for FXI
While the FXI ETF has shown signs of recovery from early 2024 lows, it remains in a bearish trend as of late July 2024. Technical analysis points to resistance levels around previous highs, indicating a challenging path ahead for the ETF due to ongoing geopolitical uncertainties surrounding Chinese investments.
