Mellon ADR Index (DJI: ^BKCN), clearly show the surge in China stocks. The China ETF iShares has jumped 30% from its October low, and the other tracking indices are performing along those same lines. Investors want to know if this is sustainable, if it’s time to get into China stocks or get in even more.
BNY Mellon China ADR Index One Year Chart Vs. FXI & S&P 500
Chinese Shares And Where To Trade Them
Most US investors if they invest in Chinese stocks do so either through ETFs, through ADRs which trade on the NYSE or the Nasdaq, and to a lesser extent mutual funds. So the measures of these ADR indices usually gives a better picture of Chinese stocks for US investors than even the Hong Kong Hang Seng Index or China’s mainland Shanghai Composite. The Shanghai Composite and the Shenzhen exchange mostly have their listed shares traded by Chinese residents, while Hong Kong has shares of mainland companies available. Though far fewer US investors go through the Hong Kong exchange than the US listed route, it can be done. It’s extremely difficult on the other hand for US investors to go through the Shanghai exchange so it’s not usually worth the trouble. It’s simply easier to invest in China through one of the three main methods, the ADRs, the ETFs, or mutual funds.
The Year Thus Far For Chinese Stocks
The iShares FTSE China 25 Index Fund has traded in a range from 28.61 to 47.99 in the last 52-weeks and recently closed at 37.72. The exchange traded fund, as its name suggests, tracks the 25 largest and most liquid companies in China. The year to date return was still running sharply negative as of early November. Similarly, the Bank of New York Mellon ADRs closed at 392.43, and has traded in a range of 328.98 to 469.24 for the last 52-weeks. So while the BNY Mellon Index has risen, like the FXI which is off 20 percent from its high, the BKCN is off 16 percent from its high.
Why The Rise?
Medium and longer term, the US indices which track the Chinese ADRs reflect trader and investor sentiment that’s actually in line with the direction if not quite the same results as the S & P 500. As US stocks have gone directionally, so have the Chinese ADRs and the vehicles US investors use to trade and invest in them; the indices simply follow along. After a very unhappy market takedown this summer which culminated in the S & P declining from July through August based on the ongoing Greek debt and eurozone problems, the market has rallied, particularly in October.
Whether this is merely a relief rally, rebound or bounce, or simply traders climbing aboard a short, volatile momentum trend, will be best known, like all market moves, in a few months from now with the clarity of hindsight. But the relief in pressure on oil prices, the possibility of the Greek situation not coming unglued overnight ala Lehman Bros.’ terminal weekend, has assuaged some market concerns, at least in the short run. US corporate earnings for the third quarter haven’t been bad either, and while the US economy is still sluggish at best, with a global slowdown in demand already pretty much digested by the market, there was room for at least an uptick. So that’s October.
China Stocks Surge
China stocks, which had been sentenced to stronger mass punishment than even many US stocks due to accounting issues and delisting at some of the more questionable firms, began to recover, too. Baidu (NASDAQ:BIDU), which had been lumped in with the possibilities of accounting issues along with other miscreants, without evidence mind you, also spooked US investors when its variable interest entity, or VIE business structure was also thought to be potentially dicey. These fears abated for investors as Baidu continued to deliver astounding earnings and its ADRs have rocketed up reflecting that.
China Life Insurance Three Month Stock Chart
Other China stocks are starting to come to life. China Life Insurance Co. (NYSE: LFC) ADRs began to move, as its ADRs were lifted from $33.52 on October 3rd to $43.04 on November 4th. The ADRs are still farther off from their 52-week high than Baidu is, but many of the Chinese ADRs have been buoyed. There are still troublesome areas with solar stocks being pounded, but that’s global. Solar ADRs are ripe for longer term value players to enter here, though, as the Chinese commitment to renewable energy is no fad. Short term traders may simply play the volatility in solar, while momentum players have been climbing aboard Chinese ADRs of rising stocks in other sectors. All the problems in China’s economy aren’t resolved, of course, and the threat of eurozone issues contaminating the globe is still there. But China’s in for better times, and the bears are missing out in so many ways.
Related: ProShares UltraShort FTSE China 25 (NYSEARCA: FXP), iShares FTSE China 25 Index Fund (NYSEARCA: FXI).
Jim Trippon, founder of Trippon Financial Media, Inc., is a maverick that has dedicated his investment career to helping investors make smarter financial and stock selection decisions. Trippon, an internationally recognized expert on global and value investing, has a deep passion for finding hidden value in global equity markets. Trippon started his career as a financial statement examiner with Price Waterhouse which allows him to dissect a public company’s financial picture and better identify hidden gems. Trippon’s savvy approach to investing and personal finance makes him in high demand by major media who seek his unique perspective on stocks and global economics. He has been featured in top publications both in the US and abroad including Bloomberg, Investor’s Business Daily, The New York Times, The International Herald Tribune, Stock Futures and Options Magazine, The Bull and Bear Financial Report and he regularly appears on broadcast television including as an on air contributor to CNBC, CNN, Fox Business, and Fox News.
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