As COVID-19 continues to wreak havoc across the world, China appears to have passed the peak of its coronavirus outbreak, with the country crediting its strict isolation measures for curbing the disease's spread. Last week, a Nomura report revealed that 62% of the firms hardest hit by the health crisis had resumed work as of March 8, with that number reaching 74% in the broader economy. Furthermore, iPhone maker Apple Inc. (AAPL) recently announced that it had reopened all of its Chinese retail stores, signaling that life is returning to normal in the world's second-largest economy.
In terms of economic stimulus, the People's Bank of China (PBOC) – the nation's central bank – announced Friday that it had cut reserve requirements for banks to encourage lending to small and medium-sized companies affected by the virus. China's Shanghai Stock Exchange Composite Index (SSE Composite) is trading down about 3% this month, significantly outperforming most other markets in the region and elsewhere that have suffered steep losses of between 5% and 20% over the same period.
Below, we'll take a closer look at two exchange-traded funds (ETFs) that provide exposure to Chinese stocks as well as a leading U.S.-listed Chinese multinational technology company. We'll then analyze the technicals to identify possible trading opportunities.
iShares China Large-Cap ETF (FXI)
With net assets of $4.4 billion, the iShares China Large-Cap ETF (FXI) aims to provide a similar return to the FTSE China 50 Index – a benchmark comprising large-cap Chinese equities that trade on the Hong Kong Stock Exchange (HKSE). The fund provides heavy exposure to China's state-run banks, allocating more than half of its portfolio to the financial sector. Over 35 million shares exchange hands per day on an average penny spread, providing ample liquidity and low trading costs. FXI offers a 2.97% dividend yield, charges a modest 0.74% annual management fee, and has fallen 17.95% on the year as of March 16, 2020.
The ETF's share price broke below multi-year support at $37 on Thursday but found immediate rejection, with the bulls closing the fund above this level in Friday's session. Traders who take a long position should think about booking profits on a move to between $44 and $45, where price may find selling pressure from the prominent April and January swing highs. Consider placing a stop-loss order either beneath the Thursday or Friday low, depending on personal risk tolerance.
VanEck Vectors ChinaAMC CSI 300 ETF (PEK)
The VanEck Vectors ChinaAMC CSI 300 ETF (PEK) tracks the performance of the CSI 300 Index, which consists of 300 China A-Shares that are mainland China-based companies trading on the Shanghai and Shenzhen stock exchanges. Chinese insurance giant Ping An Insurance (Group) Company of China, Ltd. (PNGAY) commands the ETF's top stock allocation with a 6.10% weighting. Average daily turnover of about 35,000 shares coupled with a 0.27% spread makes the fund more suited to swing trading rather than intraday scalps. As of March 16, 2020, PEK controls assets under management (AUM) of $61.88 million, yields 1.59%, and has shed 8.22% so far this year.
PEK shares have remained range bound over the past 12 months to establish clear support and resistance levels. Last week's decline found a floor near the range's lower trendline at $36 that helped ignite a 5% Friday rally. Swing traders who anticipate further gains this week should set a take-profit order close to the trading range's upper resistance level at $43.30 while implementing risk management with a stop placed below $36.
Baidu, Inc. (BIDU)
Baidu, Inc. (BIDU) provides internet search services in China as well as globally. The $34.68 billion Beijing-based company generates the lion's share of its revenue from online marketing services but continues to invest heavily in artificial intelligence technology. In fact, the technology giant has made its Linearfold algorithm available to scientific and medical teams fighting the coronavirus outbreak, which Baidu says can drastically speed up secondary structure prediction. As of March 16, 2020, the company's shares have fallen 40% over the past year and slipped 20.66% year to date.
The stock continued its sell-off Friday morning to test crucial support at $95 but staged an impressive late-day reversal to close well off its session lows. Those who buy here should set a profit target at $128.50, where price finds overhead resistance from a short-term trendline and 50-day simple moving average (SMA). Cut losses if the stock closes beneath previously discussed support at $95.