Investors in exchange-traded funds tracking China stocks may be feeling some motion sickness after the country’s stock market rocketed higher late last month in the wake of fresh stimulus measures and then gave back a big chunk — but not all — of those gains on what’s so far been seen as a lack of follow-through from Beijing.
That pullback offers investors another bite at the apple, argued Jonathan Krinsky, chief market technician at BTIG, in a Wednesday note. On Sept. 24, Krinsky called the surge in China stocks a “breakout worth chasing.” The iShares China Large-Cap ETF added around another 20% from that point through its Oct. 7 high, while the KraneShares CSI China Internet ETF rallied around 30% over the same time frame. They then suffered an almost equally as swift correction.
The speed and scope of both moves was a surprise, Krinsky said. “We expected consolidation, but clearly this is more of a price consolidation as opposed to a time consolidation.”
Both trades are still in the money, with the pullback leaving China stocks slightly above the breakout point and what should be a strong area of support, the technician said. “This creates a great secondary entry point if you missed the initial breakout.”
But don’t let a winner turn into a loser, Krinsky cautioned — saying he would use stop-loss sell orders at around $30 on FXI and $31 on KWEB.