After our recent post on Chinese markets and exchange traded funds (ETFs), we had a question from a reader, which deserves a detailed answer. Lance asked:
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.
Reviewing the performance, the Shanghai Composite is up 50% year-to-date, FXI is up 3% and PGJ is up 9%. Chinese ETFs are much different from investing in the Shanghai Composite. While it is very difficult for investors outside of China to invest in the Chinese companies that trade on these indexes, the ETFs do their part to offer what they can.
Here’s a little perspective;
Shenzhen A shares available for local investors are up 106% for the year; B shares for foreign investors are up 66%. The Hang Seng Index is up 3% year-to-date. It represents 38 stocks and 65% of the capitalization of the Hong Kong Stock Exchange.
iShares FTSE/Xinhua China (FXI) is made up of only 25 companies – those that are the most liquid – hardly a representation of the whole Chinese market. Although these companies reach across different sectors, the current make up for FXI is 40% financials and 21% utilities.
PowerShares Golden Dragon Halter USX China (PGJ) includes companies listed in the U.S. with a majority of their revenue coming from China. This ETF includes all asset classes and sectors. PGJ seems to be more in line with the Hang Seng Index.
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.