Checking In: An Estranged China Play?
Here's a fun fact that could win you some bets when turned into a trivia question. Did you know there are 226 ETFs offering at least some exposure to China? That factoid comes courtesy of ETFdb, by the way. That means in a universe of roughly 1,400 exchange-traded products, about one in every seven have some allocation to the world's fastest growing major economy.
Put another way, it's pretty easy for a few China-specific ETFs, even some that have been around for a while, to go unnoticed. A fine example of such an ETF is the iShares FTSE China (HK Listed) Index Fund (Nasdaq: FCHI).
Like so many other China ETFs, the iShares FTSE China (HK Listed) Index Fund is dwarfed in size by the iShares FTSE China 25 Index Fund (NYSE: FXI), the largest of all ETFs tracking China. FCHI has $38.2 million in assets under management. Let's just say that's well short of the $6 billion in AUM FXI can boast.
While FCHI can boast 115 stocks, it's returns over the past year (down almost 19%) mirror those offered by FXI which has just 26 stocks. The top six holdings in both ETFs are the same stocks, but with different weights and overall, the ETFs share seven of their top-10 holdings in common.
It should be emphasized that the weights are different and to FCHI's credit, it exposure to Chinese financials is “just” 42.6%. We say “just” 42.6% because FXI's allocation to financials checks in at nearly 53%.
About 15% of FCHI's weight is devoted to China's three largest oil companies – PetroChina (NYSE: PTR), Sinopec (NYSE: SNP) and Cnooc (NYSE: CEO). However, the order in the ETF is actually, Cnooc, PetroChina and Sinopec within the ETF and it should be noted that PetroChina and Sinopec easily outperformed FCHI and FXI last year so neither ETF is particularly useful as a proxy on Chinese oil stocks.
FCHI and FXI also share the same 0.72% expense ratio, but it's obvious the fate of both funds is determined by investor toward China's large-caps, regardless of whether they're listed in Hong Kong, New York or Shanghai.
Traders who believe that Chinese stocks are in for a bounce might want to consider the following trades:
- Long the Guggenheim China Small-Cap ETF (NYSE: HAO). It's volatile and a good tell on sentiment toward Chinese stocks.
- Play Chinese oil stocks with the Global X China Energy ETF (NYSE: CHIE).
- Long Cnooc, the oil company least beholden to Beijing.
Traders who believe that Chinese stocks are in for more declines, may consider alternative positions:
- Long the ProShares UltraShort China 25 Index Fund (NYSE: FXP).
- Ratchet up the risk/reward profile with the Direxion Daily China Bear 3X Shares (NYSE: YANG).
- Short the iShares MSCI Taiwan Index Fund (NYSE: EWT), which suffer if Chinese stocks fall.
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