The China Bull Is Back, Here’s How To Play It ($CAF)

Looking at charts around the world and concentrating on just the last few months it’s easy to assume that most must be near all time highs. Looking at both the iShares China Index Fund ($FXI), and the SPDR China ETF ($GXC) the rally of the last 4 months has been impressive and is currently offering another good long entry.

The angle I particularly like though is the Morgan Stanley China ‘A’ Share Fund ($CAF), precisely because of that ‘A’ share distinction, rather than being a proxy or derivative of the Shanghai index, or holding HK stocks that have exposure to China, this fund actually owns A-shares only available to Chinese investors. Back in September, Bloomberg reported on the Chinese government’s efforts to accelerate approval of quotas allowing foreign investors to buy mainland securities. The results of this change in stance helped fuel the rally of the last few months, particularly in $CAF showing an impressive increase in upside volume compared to $FXI and $GXC.

To further put this move in perspective, look at $CAF relative to the S&P 500 ETF $SPY since March 2009. While western markets have continued their choppy ascent higher and are closing in on all time highs, the Chinese market has been in a bear market in both absolute and relative terms. There have been a few false starts and rally attempts during that time, but on a relative basis this move has now climbed above two long-term averages and is showing signs that four straight years of underperformance may finally be coming to an end.