Investors have avoided investing in China since February 2021. Since that time, all Chinese equities declined massively. No sector was spared from the relentless selling. Below is a chart of FXI, an ETF representing China blue chip stocks, clearly illustrates the damage.
To be sure, multiple reasons discouraged investment in China and the entire region. Investors voted with their feet and transferred capital to US markets. Two key reasons explain the sell off:
- regulatory crackdown on Chinese technology companies,
- Evergrande liquidity crisis.
Together these events were very negative at the time. Indeed, regulatory changes are usually disruptive to the status quo. China is no exception. However, in this case, the sell off has turned into a buying opportunity.
The PBOC, or China’s central bank, started massive cash injections into their economy in December 2021. Of course, this response was a direct effort to shore up the real estate industry, specifically Evergrande. It is widely expected liquidity injections will continue as needed to keep growth chugging along.
Unquestionably, an opportunity is at hand to invest in Chinese real estate. Fortunately, Global X ETFs have the perfect vehicle for investors. It’s called the Global X MSCI China Real Estate ETF. This ETF carries a modest 0.66% management expense fee and spins off a 6.5% yield.
The stop-loss is well defined at $7.53, the March 15th low. The average daily trading range of the past 100 trading sessions is about $0.30. So, to avoid a frustrating whipsaw trade, you might want your stop to be around the $7.20 level. This way there is enough wiggle room to stick with the trade. The target take profit level is $10. In this case, I’m risking about $900 to make $2500. Not a bad risk/reward trade off.
Conclusion
In view of the current inflationary environment Chinese real estate makes a lot of sense to me for two reasons. First, a 6.5% yield certainly takes the sting out of the super high inflation rate. Second, from a contrarian point of view, no one is looking at Chinese real estate right now. This is top level sleeper trade.
Remember to mind your risk and trade your own view.
Portfolio Positions
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