Chinese Focused ETFs Back on Fire?

May 10, 2007 at 1:10 am by Tom Lydon      Bookmark and Share

Dragon Once again China’s Shanghai Composite Index is breaking records, and taking the China-focused stocks and exchange traded funds (ETFs) with them. According to published reports, the aforementioned index flew beyond the 4,000 point mark for the first time.  Darla Mercado for InvestmentNews  reports the index has been lifted by a wave of investment activity due to rising stock prices. In Shanghai prices have risen 50% continuing the 2006 gain of 130%; while the Shenzen Index has gained 100% this year.

The Chinese markets and ETFs are coming back from the fallout in February.

  • iShares FTSE/Xinhua China 25 Index (FXI) up 1.5% today and 13% since the fallout;
  • PowerShares Golden Dragon Halter USX China (PGJ) up 1.4% today and 10% since the end of February;
  • SPDR S&P China (GXC) up 2% today; this is a new China focused ETF that began trading the end of March 2007

Chinachart

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  • Lance
    Tom, something I have started to notice and since you brought up the Chinese markets I will ask you...

    As you mention the Chinese stock markets have been on fire... the Shanghai up 50% this year and the Shenzen up 100%. The US traded Chinese ETFs on the other hand are barely up, if up at all. Given the ETFs are probably very much large cap and multinational companies, but still the differential is huge. Have you noticed this and have you any other explanations? Thanks for any help you can offer.
  • George
    Would today’s jump in Barkley’s FXI, that is listed on Honk Kong exchange, be caused by China allowing overseas investment?

    I know that the same stocks listed on both exchanges differ greatly in price, Shanghai being more expensive.
    Would you anticipate that in the future this prices will level?
  • Tom Lydon
    Thanks for the questions George. Our follow up post on this story (on May 12th) should help explain your first question. Regarding future prices, the development in China continues to be flourishing compared to the U.S. economy - we are not in the business of predicting future prices, however the trend is still in tact for China.
  • The disconnect in performance between China’s domestic A-share markets and US based ETFs is certainly due to the two-tier market structure in China. None of the US based ETFs (including the new GXC) are invested in A-shares. Instead, they hold a combination of H-shares, and or US based ADRs (which track the H-shares). As you correctly point out, the H-share market is up only about 5% so far this year, compared to huge gains in mainland stocks. But this may be about to change. In fact, attached is a link to a recent article I wrote on this subject: http://burnickblog.sovereignsociety.com/2007/05/china_finally_m.html

    Mike Burnick
  • Tom Lydon
    Thanks Mike for the additional information on the Chinese markets. It will be interesting to see what happens with the Chinese market structure.
    Tom
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