Banking, finance, and taxes
Chinese New Year: Make or Break for ETFs, ADRs and Closed-End Funds in China and SE-Asia -- Snake Bite? (FXI, GXC, PGJ, PEK, EWH, EWT, TWN, EWS, VNM, EWM, TDF, BIDU, DANG, RENN)
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Chinese New Year is almost upon us. The new year is the Year of the Snake. Other nations with stock markets that celebrate Chinese New Year with multiday holidays include Macau, Malaysia, Taiwan, Vietnam and Singapore. We would caution that other markets outside of China often have abbreviated holidays rather than an all-week closure.
The Shanghai Stock Exchange lists that the market holidays will be observed from February 11 to February 15. In short, the Chinese stock market will be closed all week. ADRs, closed-end funds and exchange traded funds will trade in New York. This can make for a large discrepancy in many ADRs, ETFs and closed-end funds that trade and try to adjust to global market price changes in Japan, Europe and the United States.
Most years we might not have so much interest, but the problem is that this multiple day holiday each February grinds business to a slowing halt. It would be the equivalent to the United States extending Thanksgiving from a Thursday holiday to an all-week holiday. Why this matters so much in 2013 is that China is trying to dig itself out of very slow growth. With China being the world’s growth engine of the past decade and a half or so, this matters significantly to the United States and Europe.
The iShares FTSE China 25 Index Fund (NYSEMKT: FXI) closed out 2012 at $40.45. This ETF reached a high of $41.97 in the first week of 2013 and peaked back at $41.93 on January 22, and then with the same $41.93 high again on February 1. The market will try to interpolate the share prices each day.
SPDR S&P China (NYSEMKT: GXC), PowerShares Golden Dragon China (NYSEMKT: PGJ) and Market Vectors China ETF (NYSEMKT: PEK) are broad market Chinese ETF products we will be watching to see if any share price abnormalities surface.
In Hong Kong shares, there is the iShares MSCI Hong Kong Index (NYSEMKT: EWH). It is also actively traded and its shares are up about 3% so far in 2013.
In Taiwan there is the iShares MSCI Taiwan Index (NYSEMKT: EWT), which is very active and its shares have not been able to hold on to gains in 2013 either. There is a more thinly traded closed-end fund called the The Taiwan Fund Inc. (NYSE: TWN), which trades at a 7.7% discount to its net asset value and it is up more than 3% so far in 2013.
An ETF for Singapore is the iShares MSCI Singapore Index (NYSEMKT: EWS). It is actively traded but is essentially only flat so far in 2013.
An ETF for Vietnam is the Market Vectors Vietnam ETF (NYSEMKT: VNM), and this has grown in volume since its inception. This ETF is up a whopping 25% so far in 2013.
The ETF for Malaysia is the iShares MSCI Malaysia Index (NYSEMKT: EWM), and while it is active, it is also down about 5% so far in 2013.
Templeton Dragon Fund Inc. (NYSE: TDF) is up about 4% so far in 2013, and it is listed as trading at close to a 9.5% discount to its net asset value. This fund may be targeted toward China, but it invests at least 45% of assets in the equity securities of companies with primary businesses conducted in or with main offices in China. It can include companies with business that is expected to improve from development in China, and it may include other Asian firms.
There are many key China ADRs we would be watching closely:
- Baidu Inc. (NASDAQ: BIDU) is considered to be the “Google of China” and it just got crushed after earnings. Shares are close to a 52-week low.
- E-commerce China Dangdang Inc. (NYSE: DANG) has just seen shares pop up by 5% or so to move away from the 52-week lows after a tepid outlook in mid-January.
- Renren Inc. (NYSE: RENN) is often considered to be the “Facebook of China,” and at $3.25, its 52-week range is $3.00 to $7.87.
There are many other ADRs of much larger companies, but American investors have migrated toward investing and trading in ETFs and even closed-end funds rather than picking between the A-shares and B-shares over governance issues and listing differences between Shanghai and Hong Kong. There are many other funds and investment vehicles in countries not mentioned that also will be potentially affected that we did not cover due to length and timing issues.
Chinese New Year likely will matter to investors this year. Let’s hope this snake does not bite into portfolios.
*Discounts to NAV calculated by CEFA.com
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