Chinese stock markets are likely to continue to falter.
The UltraShort FTSE/China ETF (AMEX: FXP, Stock Forum) is up against its 200-day moving average, testing key resistance.
With all the bad news coming out of China, environmental and political, it's a good idea to see what's going on with its stock market.
Shanghai's bourse has fallen 53% since October 2007, making it the world's worst market over the period. At the core of China's problems is inflation, which is being fueled by continuing inflows of foreign capital following the rising Yuan.
As a result, the Chinese government is having to "sterilize" this foreign capital by buying it in the open market and then issuing interest paying bonds.
The government, thus, is actually losing money in the transaction, but has no choice or the money supply will swell faster and inflation will rise even faster than the recent 7.7% rate measured by consumer prices.
In this environment, it looks as if the stock market is taking the brunt of the hit. A move above the 200-day moving average (near 84) by FXP would be a sign that those betting on more damage to the Chinese stock market are gaining the upper hand.
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