Seasonality Applies to China ETFs, Too
December 20th, 2013 at 9:30am by Tom Lydon
With hopes burning bright for a Santa Claus rally and the January Effect to come into play, investors are hearing plenty of talk of seasonal trends.
Whether it is regarding specific sectors or broader indices, not surprisingly, most of the seasonal trends U.S. investors hear about pertain to U.S. equities. For example, it is widely believed that cyclical sectors such as discretionary and industrials perform well late in the fourth quarter and into the first. In terms of broader indices, the PowerShares QQQ (NasdaqGS: QQQ) is thought be entering a strong seasonal trend. [QQQ Heads to Favorable Seasonal Spot]
As we previously noted with the iShares MSCI Germany ETF (NYSEArca: EWG), seasonal trends apply to global stocks and ETFs as well and that includes Chinese stocks. [Germany ETF is an Interesting Seasonal Play]
“The Shanghai composite index tends to reach a seasonal low near the end of October and a seasonal high near the middle of May. The seasonal sweet spot, when most of the gains are recorded on a real and relative basis, is from mid-December to mid-April,” report Don and Jon Vialoux for The Globe and Mail.
Citing data from EquityClock.com, the duo note the “average return per period during the past 20 periods was 9.03 per cent, outperforming the S&P 500 index by an average of 7.10 per cent. The trade has been profitable during 15 of the past 20 periods.”
A chart of the Shanghai Composite indicates that in recent years, being long Chinese mainland stocks with a holding period starting in mid-December lasting into the first quarter has worked in three of the past four years. In early December 2012, the Shanghai Composite traded around 1,960. By the end of January, it was flirting with 2,390.
That type of seasonality could bode well for the new db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR), which debuted in early November. ASHR, as are other China ETFs, is off to a slow start this December, but that does not change the fact that the fund has nearly $214 million in assets under management, making it one of 2013’s most successful new ETFs. s [A-Shares ETF Stands Out]
In the December-February time frame, the Market Vectors China ETF (NYSEArca: PEK), which offers A-shares access via derivatives (ASHR holds equities), has produced gains in the past two years.
China A-Shares Market Value and Number of Listed Companies
Chart Courtesy: Deutsche Bank
Tom Lydon’s clients own shares of QQQ.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.