China’s ETFs No Fairytale as Three Bears Storm the Markets

July 03, 2008

by Tom Lydon

As of Wednesday’s market close, we entered a bear market that could weigh on stocks and exchange traded funds (ETFs) for the time being. But here’s a riddle: if a bear market is typically defined as a market that has fallen 20% off its recent high, what’s it called in China, which is down 60%?

Scott Tong for Marketplace says Shanghai is down three bears by that math. The problems vexing China are similar to those in the rest of the world: energy prices, automakers and so on.

China is still predicted to grow 8% to 9% this year, and Tong points out that the stock market isn’t always so reflective of the broader economy because it’s relatively small and heavy in retail investors. That makes the market there more subject to the feelings of the people.

China ETFs have taken a big hit so far this year, after a solid 2007:

• iShares FTSE/Xinhua China 25 (FXI ). down 25.4% year-to-date
• NETS Hang Seng China Enterprises Index Fund (SNO ). launched on May 22
• Claymore/AlphaShares China Small Cap Index (HAO ). down 20.4% since Jan. 30 inception

ETF Banks On Chinese Currency To Be Number Yuan Against U.S. Dollar

June 26, 2008

by Tom Lydon

Many believe that the Chinese currency will eventually become number yuan to the U.S. dollar, so it’s fortunate for them that there’s an exchange traded fund (ETF) to track it.

WisdomTree Chinese Yuan Fund (CYB ). launched on May 22, is a straightforward, highly liquid way to play the yuan against the dollar, reports Steven Halpern for Blogging Stocks.

The major China-U.S. dynamic that has developed over the past few years has also led to a drastically different global economic climate, says Halpern. The dynamic tends to operate like this:

• China sends goods to the United States
• The United States sends dollars to China
• China sends dollars back to United States
• The United States sends treasuries to China

Currency expert Jack Crooks says that underlying this capital flow is an artificially undervalued Chinese yuan, and it’s a major reason China has become a major supplier of goods and capital to the rest of the world.

If the yuan continues to appreciate, as it has in recent times, it will put more power in the hands of the Chinese consumer. It’s in the government’s best interest to keep the momentum going.

Meanwhile, WisdomTree added two more currency ETFs to their lineup this week:

• WisdomTree Dreyfus New Zealand Dollar Fund (BNZ )

• WisdomTree Dreyfus South African Rand Fund (SZR )

iShares Welcomes New Additions To ETF Family

June 26, 2008

by Tom Lydon

Barclays Global Investors made three new additions to the iShares exchange traded fund (ETF) family this week.

• iShares S&P Global Timber & Forestry Index Fund (WOOD )
• iShares S&P Global Nuclear Energy Index Fund (NUCL )
• iShares S&P Global Clean Energy Index Fund (ICLN )

All three funds have an expense ratio of 0.48%.

WOOD will be joining the Claymore/Clear Global Timber (CUT ). which tracks companies that own or manage forested land and harvest the timber for commercial use or the sale of wood-based products such as pulp, lumber and paper. It has a low correlation to the broader market, and before CUT launched, only institutional investors had access to this area.

NUCL will be joining the Market Vectors Nuclear Energy Fund (NLR ) which is actually a growing energy source, as China and Russia have signed a pact for $1 billion to build out a nuclear power plant facility. If China is committed to a nuclear energy policy, then it’s worth your time to notice related ETFs. PowerShares Global Nuclear Energy Fund (PKN ) is also a player in the ranks.

ICLN will join clean energy status with First Trust Nasdaq Clean Edge US Liquid Series Index Fund (QCLN ). Reasons to invest in clean energy include the fighting global warming, break away from peak oil prices, improvement of local economies and possibly make money on some newer trends, such as solar or wind power. Other ETFs keeping it clean are PowerShares WilderHill Clean Energy ETF (PBW ) and Market Vectors Global Alternative Energy ETF (GEX ) .

iShares has also launched the iShares FTSE China (HK Listed) Index Fund (FCHI ). which has an expense ratio of 0.74%. The fund is most heavily allocated in financials, with 32.8% of the holdings, followed by telecommunications at 24.3% and industrials at 14.4%.

ETFs and Sectors to Watch In the Second Half of 2008

June 24, 2008

by Tom Lydon

Those who prefer investing with exchange traded funds (ETFs) may have bountiful choices to pick from, as there are several areas worth watching for the latter half of 2008. Can you believe we’re already just about halfway through the year?

1) The Federal Reserve has said it will keep interest rates stagnant for now in an effort to keep the economy in recovery mode. But analysts expect rising rates later in the year to help boost the value of the U.S. dollar.

For today, the dollar finished lower after another round of weak U.S. economic data was released, report Myra P.Saefong and Nick Godt for MarketWatch .

An ETF to capitalize if the greenback turns it around? PowerShares DB US Dollar Index Bullish (UUP ). which is down 3.7% year-to-date.

The dollar against the euro and the Japanese yen:

2) On the housing front, sales are still down, and inventory is rising, all the while home prices continue to fall. For the first quarter of this year, they were down 14.1%.

Lowered prices are causing buyers to come out of the woodwork, as bargain hunters have sent home sales up 6.3% in April from March. In bad news, housing starts fell to their 1991 lows, down 3.3% in May, Patrick Rucker for Reuters reports. There have been mixed signals about the health of the sector across the country: in the Northeast, for example, housing starts jumped 61.5%. But starts in the Midwest were down 25%.

When the housing market is once again on solid footing, some of the funds investors can use to take part: SPDR S&P Homebuilders (XHB ) and DJ Wilshire REIT (RWR ). The funds are respectively down 9.4% and 2.2% year-to-date.

3) China may be full of surprises for the last part of 2008, as they are still a growing nation despite recent hiccups.

Deutsche Bank’s economist raised his 2008 and 2009 GDP forecasts to 0.7% and 0.4%, respectively. Moreover, the recent quake should deliver a boost as reconstruction begins.

As for the Olympics, plenty of countries have suffered a post-Olympics hangover, but that’s not likely in China, say Alan Wheatley and Chris Buckley for Reuters. That’s because Beijing accounts for just 3.7% of Chinese GDP, and Olympics-related capital spending was only 1% of nationwide investment from 2003-2007.

Funds to watch if China mounts a firm turnaround in the second half of this year: iShares FTSE/Xinhua China 25 (FXI ) and SPDR S&P China (GXC ). which are down 20.4% and 23.3% year-to-date, respectively.