I keep hearing on CNBC that China is crashing. Every day there is talk about how urgent the situation is. Let's refute this idea with some facts. First of all the current price to earnings ratio (PE ratio) of the I-Shares China 25 Index is a whopping 12. Yes, a PE of 12. A PE in the teens is not high for the largest companies in China let alone any stock of index. Around the high this year it was closer to 20. Still no bubble territory. In the 2007 Chinese crash the PE of FXI was closer to 40 than the teens.
In the 2007 crash there was a double top formation. There isn't a bearish chart formation here. The current chart of the China 25 FXI is actually bullish. The first chart below is the most recent trend line. It is being tested right now. The second chart is a long-term chart of FXI which shows the long trading range it was stuck in for years. It finally broke out of this range which is bullish. It just broke out this year. This is not a parabolic move to the upside. We finally just hit some highs! The red line on the top is the top of the trading range. The red line on the bottom shows the uptrend. If the index falls to the low 30s we are closer to a crash. A crash would be if the upper 20s get taken out.