Tag Archives: china

4 Solid ETF Deals For China Singles Day

‘Singles Day’ in China has gained immense popularity in recent years, with e-commerce players making quick bucks on the back of heavy discounts and promotions to lure solitary souls. Also known as anti-Valentine’s Day, the date 11.11 depicts those who are single. The young Chinese binge on this popular occasion making it the world’s busiest online shopping day. In fact, Singles Day is now much bigger than Cyber Monday and Black Friday, with 80% more online sales in 2014. This year too, Singles Day is set to be bigger than ever, surpassing stellar sales records of last year, as per KPMG . Clothing and accessories, cosmetics and personal care, household products, home electrical appliances as well as food and beverages are the most popular categories that generally enjoy higher sales in this online shopping festival. Singles Day: A Revenue Booster Chinese e-commerce giant Alibaba Group (NYSE: BABA ) turned into the biggest 24-hour cyber spending blitz worldwide six years ago. Alibaba hit a record $9.3 billion in sales last year versus $5.8 billion in 2013 and $3.1 billion in 2012. One analyst, SunTrust, expects Alibaba’s sales to reach $12 billion this year. This year, the company has 50% more participating vendors from around the world and 30,000 brands offering more than six million products through its various online shopping platforms, including Tmall, Taobao Marketplace, group-buying site Juhuasan and the AliExpress global retail site. JD.com (NASDAQ: JD ) is bolstering its sales and promotion on the day to give stiff competition to Alibaba. It is expecting sales to double from the last year. Other e-commerce firms like Baidu (NASDAQ: BIDU ), Jumei International (NYSE: JMEI ) and Vipshop Holdings (NYSE: VIPS ) will also offer huge discounts and expect a high sales volume on the day. Courier services are also expected to rise with the surge in e-commerce business. So logistics giants such as SF Express, STO, and YTO should also be on the list of gainers. How to Play E-commerce players have a tradition of enjoying a huge rally on the Singles Day shopping fervor. Investors seeking to tap “Single Day” benefits in a diversified way should focus on the following four ETFs that provide substantial exposure to the Chinese e-commerce or retail segment. KraneShares CSI China Internet ETF (NASDAQ: KWEB ) This product provides concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index. In total, the fund holds 58 securities in its basket with heavy concentration on the top four firms – Tencent Holdings ( OTCPK:TCEHY ), Ctrip.com (NASDAQ: CTRP ), Alibaba and BIDU – which combine to make for 37.4% share. The ETF has amassed $169.9 million in AUM and charges 71 bps in annual fees from investors. Volume is good as it exchanges 156,000 shares in hand per day. The fund surged 16% in the trailing one-month period. Guggenheim China Technology ETF (NYSEARCA: CQQQ ) This fund targets the overall technology sector in China and follows the AlphaShares China Technology Index, holding 76 stocks in its basket. Alibaba dominates the fund’s return with 21.7% share while other firms hold no more than 9.5% of assets. In terms of industrial exposure, about 65% of the portfolio is allotted to Internet mobile applications while electronic components and semiconductors round off to the next two spots. The product manages an asset base of $56.7 million while trades in a small volume of around 40,000 shares a day. Expense ratio came in at 0.71%. CQQQ added 8.5% over the past one month. Global X China Technology ETF (NASDAQ: QQQC ) This ETF also targets the broad technology sector and tracks the NASDAQ OMX China Technology Index. It is unpopular and illiquid with AUM of just $15.9 million and average daily volume of around 9,000 shares. It charges 65 bps in annual fees and holds 38 stocks in its basket with none holding more than 9.05% of assets. About half of the portfolio is allotted to Internet mobile applications while communication equipment makes up for 12% share. QQQC was up 8.2% over the past one month. Global X China Consumer ETF (NYSEARCA: CHIQ ) This product offers exposure to the consumer sector in China by tracking the Solactive China Consumer Index. Holding 41 securities in its basket, it is pretty spread out across each component as none of these holds more than 5.68% share. The ETF is also well diversified across industries with automobile manufacturing, Internet retail, packaged food products, and apparel & luxury goods occupying double-digit exposure each. The fund has a lower level of $95.7 million in AUM and about 53,000 shares in average daily volume. It charges 65 bps in annual fees and expenses and added 4.6% over the past one month. Original Post

5 Japan ETFs Set To Rise Higher

A stronger-than-expected jobs report last Friday firmed expectations that the Fed may raise rates in December. However, the Fed has made it very clear that even after the first hike, the monetary policy is going to stay accommodative for quite some time. While a recovering economy and still accommodative monetary policy are good for US stocks, many investors are worried about rich valuations in the face of lackluster earnings. Investors should consider adding some Japanese stocks and ETFs to their portfolios, considering expectations of additional stimulus, rising corporate profitability and still-attractive valuations. Stimulus Expectations Rising In its last meeting, the Bank of Japan decided to keep its powder dry and maintained QE at the current level of ¥80 trillion ($660 billion) annually. However, taking into account the impact of the emerging markets’ slowdown, the bank downgraded its growth projections. Many still expect that the BOJ will have to announce an increase in asset purchases in the coming months. If the central bank decides to keep the stimulus unchanged, despite weak economic outlook, it will likely to be perceived as an acceptance by BOJ of its inability to ward off deflation. The BOJ governor reiterated its resolve to take further policy action if needed, and the case for additional easing continues to strengthen. Is Abenomics Working? The headline consumer prices index had risen after the launch of Abenomics in 2013, but has fallen back to zero, thanks mainly to the collapse in oil prices. Sales tax hike last year also forced consumers to cut spending and pushed inflation lower. The BOJ has now extended the deadline for achieving inflation target of 2% by six months. On the other hand, a new index of inflation, which excludes energy and food, has been rising; it was up 1.1% in August and 1.2% in September. The labor market has tightened, with the unemployment rate plunging to 3.4%. And the stock market is up about 120% since the launch of Abenomics (in local currency terms), thanks mainly to a surge in corporate profits, while the yen has declined almost 30%. Nominal GDP has actually turned upwards since 2013, after 20 years of sideways movement. Higher-than-expected industrial output (1.0% versus 0.5%) has also eased worries regarding a recession during the third quarter. Can the Yen Weaken Further? After falling to a 13-year low in June this year, the yen had rebounded nicely, thanks mainly to its safe haven status amid global turmoil. The currency has weakened over the past few weeks as expectations of the rate rise by the Fed have been rising. Rising Earnings; Increasing Shareholder Value Thanks mainly to the declining yen, Japanese companies’ earnings have improved a lot since the launch of Abenomics. The outlook for earnings growth for Japanese companies, particularly exporters, remains much better than in the US, with rising expectations for a rate hike by the Fed in December. Further, Japanese authorities have been encouraging companies to improve corporate governance and increase shareholder value via dividends and buybacks. Japanese Stocks Are Still Attractively Valued Despite recent rise, Japanese stocks trade at cyclically adjusted price/earnings ratio (CAPE) or Shiller P/E of 26.4 more than 20% below than the historical average of 34.4. Considering superior earnings growth potential of Japanese companies, these valuations look very attractive. Japan Post’s Strong IPO Japan Post, the parent and its banking and insurance units, IPO’d successfully last week on the Tokyo Stock Exchange. It was the largest IPO since Alibaba’s (NYSE: BABA ) public debut last year. The demand was very strong, the IPO oversubscribed and the shares opened 16.5% higher than the IPO price. The institution manages almost 25% of Japanese savings, and phased freedom from state ownership helps it to take more risks. So far, most of Japan Post’s assets have been invested in safe government bonds. Japanese authorities are trying to encourage investors to put more money into stocks rather than in savings products. The 144-year old Japan Post has a well established brand and is expected to attract retail investors. Biggest Risk for Japanese Stocks: China Slowdown Japan’s exports to China fell 3.5% last month, after declining 4.6% in August. With a slowdown in Chinese demand, Japanese exporters are cutting their production and profit forecasts. A decline in profits would further hurt investments and wages. A sharper slowdown in China could present the biggest challenge to Japanese equities; however, recent data suggests that China’s growth panic is probably overdone. Best ETFs to Consider In view of the reasons discussed above, we strongly believe that investors should consider investing in currency hedged Japan ETFs, which offer an excellent way to profit from the rise in Japanese stocks, while hedging the currency risk in case the yen moves lower. Additionally, adding some international flavor to the portfolio provides diversification benefits and boosts long-term risk-adjusted returns. The WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) is the most popular ETF in this space, with $16.9 billion in AUM. The fund’s top holdings include well known Japanese companies Toyota (NYSE: TM ), Mitsubishi ( OTCPK:MMTOF ), Japan Tobacco ( OTCPK:JAPAF ) and Canon (NYSE: CAJ ). It charges an expense ratio of 0.48%. DXJ is up more than 12% year to date. Another great ETF worth a look is the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEARCA: DBJP ), which follows a similar strategy and is also slightly cheaper, with an expense ratio of 0.45%. Toyota, Mitsubishi and Softbank ( OTCPK:SFTBY ) are among its top holdings. DBJP is up almost 13% this year. The iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ ) provides exposure to large- and mid-capitalization Japanese equities, both exporters and local companies. The fund’s expense ratio is 0.48%. The product is basically a currency hedged version of the ultra-popular Japan ETF EWJ. It is up more than 13% this year. The WisdomTree Japan Hedged SmallCap Equity ETF (NASDAQ: DXJS ) provides access to the small-cap segment of the Japanese stock market, while hedging the currency exposure. It charges 58 bps in expenses per annum. Smaller companies are more sensitive to domestic economic trends than their larger-cap counterparts, but at the same time, their stock prices are more volatile. This product has returned almost 18% this year. The WisdomTree Japan Hedged Financials ETF (NYSEARCA: DXJF ) provides currency hedged exposure to the financial segment of the Japanese stock market, including banks and insurers. It charges 48 bps in expenses. Financial firms have been benefitting from the rising stock market, and the ETF is up more than 18% this year. Original Post

A New Chinese ETF Is Better For An Arbitrage Or Just To Be Long Mainland China

Summary I’ve often written on the emerging spread between China-listed and Hong Kong-listed shares. This spread can form the basis of an arbitrage, but present ETFs have some problems in providing such arbitrage. However, there’s a new China ETF which might be better both for such an arbitrage and even just for a simple long for those wanting mainland China exposure. I’ve sometimes written about the widening gulf between Chinese shares quoted in Hong Kong (H shares) and their equivalents quoted in China’s Shanghai/Shenzhen exchanges (A shares). The last time I wrote about it was in my article titled ” There’s A Measure Of Irony In Today’s China Rally .” This spread between what are effectively the exact same shares started in November 2014, which coincided with the inception of a large bubble in Chinese stocks (quoted in China). One can follow this irrational spread by checking the Hang Seng China AH Premium Index and seeing how in years prior the index hovered in the 90-110 area as it should, and only recently it shot as high as 140-145. This means a basket of equivalent A shares is trading 40-45% above what their Hong-Kong quoted counterparts are going for. ( Source : FT.com ) I’ve said that a way to take advantage of this situation would be to arbitrage it by selling short an index fund composed of A shares and buying an index fund composed of H shares. My candidates for this were the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEARCA: ASHR ) for the short leg and the iShares China Large-Cap ETF (NYSEARCA: FXI ) for the long leg of the arbitrage. However, I’ve always had to warn that this is a very imperfect arbitrage, because the funds don’t have the same holdings – they just have some overlap where it matters. As such, this trade could only be taken for short periods of time, as any tracking error can accumulate over time. There Might Be A Better Way There is a new kind on the Chinese ETF block. I am talking about the CSOP China CSI 300 A-H Dynamic ETF (NYSEARCA: HAHA ). This ETF has unique characteristics, as follows: It replicates the CSI 300 Index, which is made up of A shares. However – and this is a key difference – whenever there’s an equivalent H share, and the H share is trading cheaper than its A share counterpart, the ETF buys the H share instead. Also, the fund carries a 75 bps expense ratio. And it’s managed by CSOP, which is the largest China A ETF manager globally, based in Hong Kong and with offices in New York. Due to the unique way this ETF is managed, it presents a much better way to implement the arbitrage I once used ASHR and FXI for. Here, the arbitrage would need to be structured as follows: A long position on HAHA. Together with a short position on ASHR, which tracks the CSI 300. The tracking error of this solution would be much smaller than the previous version, and it should correlate much better with changes to the Hang Seng China AH Premium Index. Furthermore, this ETF will probably also constitute a better alternative for those simply wanting direct exposure to China’s A share market/CSI 300. After all, it will include all of the necessary components, while also including the cheaper H shares if those are available. Not All Is Roses, Though There are a couple of issues which need to also be taken into account: HAHA is still a very recent and mostly unknown ETF, so its liquidity is very low. Furthermore, low liquidity can lead to large bid-ask spreads, much larger than either FXI’s or ASHR’s. This can be somewhat mitigated if the proper market makers tighten them, but at present, it’s clearly a problem, as it increases trading costs. Also, holding an ASHR short position, while being cheaper now, is still somewhat expensive. This is how the short rebate fee has evolved recently – as you can see, it still costs nearly 6%/year to keep an open short position: (click to enlarge) ( Source : Interactive Brokers) Conclusion There is a case to be made for using HAHA for an arbitrage to capture the Chinese A-H share spread in an arbitrage position. There is also a case to be made for using HAHA just to get long exposure to the Chinese CSI 300 index. However, a couple of problems remain in both cases, namely the lack of liquidity and thus larger trading costs, and the cost of keeping an ASHR short position open.