The MSCI China index is currently trading around 10 times price to earnings.
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Consumer discretionary makes up 22% of the fund as of end of 2010, compared wtih 5.5% in the MSCI China index.
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The MSCI China index, meanwhile, as measured by its corresponding iShares ETF of the same name is down 8.92% in the same period.
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Take a look at the chart below, which shows the year-over-year money supply compared to the MSCI China Index over the past decade.
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The MSCI China index, which tracks large- and mid-cap Chinese companies, trades at eight times next year's earnings, about a third below its 10-year average.
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For example, financials (including banks, insurance and diversified financials) account for 35.4% of MSCI China index, though they make up just 12.6% of the national GDP.
There is a fundamental shift going on in China, even if the technical trade is killing the MSCI China index and the FTSE China Xinhua 25 (FXI) exchange traded fund this year.
This ETF and iShares MSCI China Index Fund ( MCHI) I both liked on November 13 because as I could target a buying level near support and a stop at a reasonable level.
Chart Analysis: Though the iShares Trust FTSE China 25 Index Fund ( FXI) is considered by most to be the favored China play, there are several reasons that I prefer the iShares MSCI China Index Fund ( MCHI).
Their stocks, measured by the MSCI China Financial Index, gained about 8% last month.
Nevertheless, China equities are still beating the MSCI Emerging Markets index, if measured by the FTSE China Xinhua 25 (FXI) exchange traded fund.
The ETF is down over 8% year-to-date, making China an underperformer of the MSCI Emerging Markets index yet again.
After beating the MSCI Emerging Markets Index for the past six months, China equity outperformance will unlikely last the year.
Investors concerned about scenario 5 may want to short Japanese and Chinese ETFs like Ishares MSCI Japan Index Fund (NYSE:EWJ) and Ishares FTSE China Index Fund (NYSE:FXI).
Eight equity markets South Korea, Taiwan, South Africa, Mexico, Brazil, Russia, India and China also make up 80% of the MSCI Emerging Markets index.
Since June 1, the iShares FTSE Xinhua China ETF is down 4.95%, underperforming the MSCI Emerging Markets index and the MSCI EAFE, both down around 2.9%.
China was the worst performing of the BRICs, dragging down the MSCI Emerging Markets index, as well.
We like China Steel not just because it will be an important component of the MSCI index.
Over the last six months, the iShares FTSE China Xinhua 25 ( FXI) exchange traded fund has outperformed the MSCI Emerging Markets index.
The iShares MSCI Brazil (EWZ) is down 22.4%, Market Vectors Russia (RSX) down 21.8%, Wisdom Tree India (EPI) down 16.4%, iShares FTSE Xinhua China 25 (FXI) down 15.9% and the MSCI Emerging Markets index (EEM) down 19.5% over the last month.
The black box bought the iShares MSCI Brazil (EWZ) ETF, Market Vectors Russia (RSX), Wisdom Tree India (EPI) and iShares FTSE Xinhua China (FXI), among others, instead of Vanguard and iShares MSCI Emerging Markets index funds.
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China's Shanghai Composite Index, meanwhile, is up 2.4%, while the overall MSCI Asia index outside Japan is up 1.3%.
On the equity side, compared to the benchmark MSCI Emerging Markets index, global emerging market equity funds were underweight, in order of less weighting, Brazil, China and Russia, and slightly overweight India up to June 11, according to EPFR Global and Barclays.
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