During periods of strength, I typically encourage investors seeking exposure to China to turn to the small-cap HAO; the fund's focus on smaller names allows investors to take advantage of the nation's blossoming consumer class. However, if weakness persists and Moody's observations hold up, the outlook for FXI appears more optimistic.
Bigger may look better when it comes to China, for now, but FXI is not without its challenges, either. On the contrary, in addition to a prolonged economic slowdown, interference on the part of China's government could be enough to stifle strength.
This week, Chinese Premier Wen Jiabao hinted that such an intervention may be in the cards. In comments made to China National Radio, he noted that China's bank monopoly needs to be broken.
9 Stocks That Prove Dividends Make All the Difference
The happenings taking place in China at this time are exciting to watch. However, with the nation's economic outlook mired in uncertainty, most investors will be best off on the sidelines.
Aggressive individuals may be tempted to venture into a fund like FXI, but even here, exposure should be kept small and close to the chest. If weakness persists or intensifies, or if the government decides to take bold action toward SOEs, risk takers must be prepared to make necessary adjustments.
Written by Don Dion in Williamstown, Mass.