China Index MSCI iShares ETF MCHI

China is the Key to the Global Economy


Ready To Fire Your Money Manager?

Free Access to the NetPicks ETF Investor - 100+ Top ETFs Analyzed

No Cost, No Obligations, It's Free!
100% privacy guaranteed
iShares ETF MCHI

China Index MSCI iShares ETF MCHI

Key Statistics (as of 11/22/17)

Daily High 69.98 Short-Term Trend Bullish

Daily Low 69.58 Intermediate-Term Trend Bullish

Daily Close 69.84 Long-Term Trend Bullish

Minor Support Level 65.31 Minor Resistance Level 70.17

Major Support Level 39.02 Major Resistance Level 79.77

Minor Buy Signal 71.12 Minor Sell Signal 64.88

Major Buy Signal 80.59 Major Sell Signal 36.60


Are we on the verge of a global recession? This seems to be the most important question these days within the investment community. And for good reason. After all, the financial markets are driven by the strength or weakness of the global economy. Investors who can accurately forecast economic trends will definitely have a “leg up” among their investing peers. This explains why the major Wall Street firms are willing to shell out seven figure salaries for the top economists.

The global economy has enjoyed positive growth each year since the Great Recession of 2008. Although the growth rate has been rather anemic during the past nine years, it is moving in the right direction. In fact, the World Bank is forecasting an acceleration in global economic growth for 2018 and 2019.

Which country is responsible for leading the way toward increased economic expansion? The answer is, “China.” For the past 20 years, the Chinese economy has easily surpassed all major industrialized countries in terms of economic growth. It’s growth rate has been absolutely phenomenal. Since 1997, China’s economy has experienced an average annual growth rate of 9.2%.

Clearly, China is the “key” to the entire global economy. It is the universal engine of economic growth. In order to successfully determine the future direction of the international economy, investors and economists must develop an accurate forecast of the Chinese economy.

In an effort to expose investors to the Chinese economy, BlackRock introduced a China ETF through its iShares family of exchange traded funds. The ETF began trading on March 29, 2011, under the ticker symbol MCHI. The ETF gives investors access to 85% of the Chinese stock market based on the MSCI China stock index. MCHI is comprised of 151 different companies.

MCHI is an excellent barometer for tracking the overall health of the Chinese economy. It offers a perfect blend of large and mid-sized Chinese companies.


MCHI has enjoyed a remarkable rally during the past 11 months. In fact, the ETF has never traded below its opening price of 44.18 from the very first trading day of 2017. MCHI has basically gone straight up for 11 consecutive months. Investors have captured a YTD rate of return of 58%.

Obviously, the bulls are in complete control of MCHI. The next level of resistance is the November 21st all-time high of 70.17. In order to reverse the bullish trend, the bears need a weekly close below 65.31.


For the past several years, there has been a rather fierce debate among major Wall Street economists concerning the future direction of the Chinese economy. There appears to be two opposing viewpoints in regards to Chinese economic growth. Each viewpoint is radically different from the other. The battle lines have been drawn in the great debate pertaining to China and its ability to generate future economic growth. Let’s briefly examine the two viewpoints.

The first group of Wall Street economists are bullish on China’s prospects for continued economic expansion. They are in the pro-growth camp. Without question, those in the bullish camp have been 100% correct during the past several years concerning the Chinese economy. As we discussed a few minutes ago, China has amassed an unprecedented string of continued economic growth during the past two decades.

Although the bullish camp has been accurate in its previous forecasts, investors are not concerned about previous accomplishments. Instead, they want to know about China’s future direction. What’s in store for the next decade?

Those economists in the bullish camp continue to remain steadfastly upbeat on the Chinese economy. Why? Because they believe China’s recent announcement of its Silk Road project will add several years of additional uninterrupted economic expansion.

What is the Silk Road project? Actually, the original Silk Road is the ancient trade route that once ran between China and the West during the days of the Roman Empire. The main commodity used for trading purposes during this time period was oriental silk; hence, the name, “Silk Road.”

In 2013, Chinese President Xi Jinping, announced a grand plan to resurrect the Silk Road trade route. More specifically, a state-of-the art double trade corridor is set to reopen channels between China and its new western trading partners. These regions would include Central Asia, the Middle East and Europe.

A specific plan of action was released in 2015, called the Belt and Road Action Plan. The main goal of the plan is to improve trade relationships in the region through infrastructure investments. China has already laid the groundwork for its first project, a $500 billion infrastructure program designed to benefit up to 62 countries over the course of the next five years.

The total project will take several years to complete, with an estimated price tag of $8 trillion. Obviously, this is a huge undertaking which will undoubtedly experience its share of delays and roadblocks along the way. However, China is certainly moving in the right direction in terms of future economic growth.

Those who remain bullish on the Chinese economy certainly have a valid argument for their bullishness. It’s hard to argue against the bullish implications of the Silk Road Project.

Next, let’s examine the viewpoints of the Wall Street economists who continue to remain bearish on the Chinese economy. During the past few years, there has been a growing number of important economists who have jumped on the bearish Chinese bandwagon (despite China’s relentless pace of improved economic growth).

The bearish case concerning China’s economy revolves around its internal credit growth. For the past 20 years, the Chinese government has been on a relentless pace to expand its economy through massive infrastructure spending and developmental projects with other countries (i.e. Silk Road Project). Of course, these projects require the issuance of government debt. The bears claim China’s government debt is growing at an unsustainable pace.

In addition to its government debt, China must also account for the country’s private debt. This includes consumer debt and corporate debt. As a percentage of its gross domestic product (GDP), China’s total debt level is 217%. In comparison to other countries, China’s debt-to-GDP ratio is certainly not dramatically out of line with its G20 counterparts. For example, the debt-to-GDP ratio for the United States is 233%. Germany’s number is 188%, while the India’s ratio is 120%. Japan has the largest debt-to-GDP ratio @ 400%.

On the surface, it appears China’s debt level is fairly manageable. Most economists agree that China is not facing any type of imminent danger in regards to its debt-to-GDP level. However, the major concern within the Chinese bearish camp is the rate at which the country’s debt is growing.

During the past few years, China’s debt has been expanding by an amount equal to 15% of the country’s output each year. By 2022, China’s debt-to-GDP ratio is projected to approach 300%.

The bears claim China’s debt expansion will eventually become unmanageable. History would suggest that the bears may have a valid argument concerning the country’s ballooning level of debt. During the past several decades, other countries have attempted to increase their internal debt by several multiples. Each of these debt expansions have ended in an economic recession or a complete financial disaster. Will China’s outcome be any different? The bears say, “No.”

Of course, the Chinese government has a different outlook on its rising debt level. They certainly acknowledge the country’s level of debt. However, the government claims the deficit is manageable because they have an enormous current account and capital account surplus. Added together, these surpluses total over $3 trillion in net foreign reserves. The Chinese government does make a good point. By examining both sides of the balance sheet (assets and liabilities), it certainly appears things are not as “doomy & gloomy” as previously suggested.

Both the bulls and the bears have valid arguments in regards to the future direction of the Chinese economy. However, at least for now, the bullish camp is winning the argument.

MCHI is trading very close to its all-time high of 70.17. The next important long-term resistance level is 79.77. In order for the long-term trend to turn bearish, MCHI must generate a weekly close below 39.02. Barring some type of financial disaster, it’s highly unlikely MCHI will drop below 39.02 any time in the near future. Based on the overall performance of MCHI, it’s difficult to be bearish on China. The bulls clearly have the upper hand.


Please review the attached 4-month chart of MCHI. This chart is incredibly bullish. MCHI has produced six bullish breakaway gaps during the past several weeks. The next important resistance level is 70.17. The bears need a weekly close below 65.31 to push the momentum in their favor.

iShares ETF MCHI


Please review the attached 6-year chart of MCHI. The chart pattern turned decidedly bullish in March 2016, when the bears were unable to penetrate the major low from October 2011. MCHI has pushed its way steadily higher for the past 18 months. During this time period, the ETF has enjoyed a gain of 98%. The long-term chart will turn bearish on a weekly close below 39.02.

iShares ETF MCHI

Leave a Reply

Your email address will not be published. Required fields are marked *


Ready To Fire Your Money Manager?

Free Access to the NetPicks ETF Investor - 100+ Top ETFs Analyzed

No Cost, No Obligations, It's Free!
100% privacy guaranteed