Saturday, 26 July 2014

Achieving 20% upside in this market

This was the statement made recently by Mr. Mark Mobius, the executive chairman of Templeton Emerging Markets. You can read more about this piece of news from here. In fact, he also predicted that there will be 20% upside in the Chinese market in the same piece of news. It is not easy to find such an attractive upside in today's bullish market. When one mentioned the Chinese market, you will hear many stories about investors who had previously lost their money. Let's take a look at some of these data and numbers and make some intelligent analysis so that we protect our capital this time.

One of the key data which most investor look at for the Chinese market is the China Manufacturing PMI. The latest one from HSBC indicated in this article here that it has risen to 52 which is 18mth high, and this has given the Chinese and regional markets much confidence.
The chart below shows the index has been hovering around the 50 region.

Now, let us look at one of the popular ETF which one can invest to get exposure to the Chinese market. I am not advocating in buying this counter as I am not a certified professional and thus not allow to give this kind of advice, just using this ETF (there are others) to illustrate the method that we can use for our own analysis. 
You can find the chart for this counter from yahoo finance portal.

Today, I will not be looking at the technical chart for buy/sell signal, let's look at the distribution chart over a period of time. On the x-axis, this is the closing price per month, and on the y-axis, this is the number of times this price occurs over 4 years period.

This is a simple distribution chart of the closing price per month for MCHI ETF. 
The chart tells us the following:

  1. that median price over period of 4 years from 2011 till now is $45
  2. there is an equal distribution of price hit below and above $45
  3. In the upper price range, the hit is most at around $50 to $52
  4. In the lower price range, the hit is mostly at around $40 to $42
How do you think this chart can help you and what else can you gather from the chart?

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