Email of the day (1)
Comment of the Day

September 29 2010

Commentary by Eoin Treacy

Email of the day (1)

on differences in various Chinese indices and ETFs
"The China sector Indices in the Asia sector indices section have not been updating. Could you please look into this? I am struck by the difference in performance between FXI and HAO and the CBOE China index. I suspect this is because of the financial sector. Could you comment on this please? "

Eoin Treacy's view Thank you for raising this issue which may also be of interest to other subscribers. Of the 27 sector indices relating to mainland China and Hong Kong in the Asia section of the Chart Library three had not updated and this has been corrected. The sectors of the CSI300 were coming in a day behind due to the way we received the data from Bloomberg. This has now also been corrected. As for the difference in the performance between the FXI, HAO ETFs and the CX Index there are some interesting reasons for this.

The iShares FTSE/Xinhua China 25 ETF (FXI) is comprised of the 25 largest Chinese companies listed in Hong Kong (H-Shares). China Mobile occupies the largest weighting at 9.6% but the next five are all financials and insurance companies which have underperformed.

The Guggenheim China Small Cap ETF (HAO) is comprised of Chinese companies listed in Hong Kong and the USA and does not appear to be overly concentrated in any one sector. It has a comparatively large number of holdings which also means that no one share has a dominant weighting. However since it holds Air China I am not sure how it can be classified as a small cap fund.

The CBOE China Index (CX) is an index of 20 ADRs doing the majority of their business in China. Four of its top five weightings are not listed in either China or Hong Kong. These are Baidu Inc (5.73%) (5.33%) (5.2%) and Focus Media Holding (5.13%). This preference for a US listing among internet businesses is notable and may help to explain the outperformance of this Index.

This comparative chart from Bloomberg displaying the total return since 2008 indicates that the CBOE China Index, with a relatively minor weighting in banks, property and insurance and an overweight in technology is outperforming by a considerable margin. This holds with out observation that Chinese mainland smaller cap indices or sectors focused on the growth of the domestic consumer are outperforming.

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