ETF Exchange Traded Funds
December 30, 2015 - Investing in China Stocks Through ETF's
Chinese Stocks Face Another Wild Ride in 2016 by The Street
Chinese stocks seesawed from a 150% gain to a 40% loss this year, scaring investors around the world.
Get ready for another wild year in 2016.
An awkward transition for China's mammoth economy, a possible new round of devaluation for the yuan currency and lingering issues behind the share price rout in mid-2015 will keep prices volatile with a downward trend, analysts say. That means long-term investor beware.
"I believe there will continue to be volatility in the Chinese markets next year as the economy struggles with the diverging state of the manufacturing and consumer economies," said Nitin Dialdas, CIO with Mandarin Capital in Hong Kong. Investors, he said, "will need to be vigilant for sharp moves both upwards and downwards and trade around these moves."
Manufacturing has tapered since 2011 as labor gets more expensive. High-tech private enterprise will take time to replace the role of factories in the world's No. 2 economy, said Liang Kuo-yuan, chairman of the Yuanta-Polaris Research Institute think tank in Taipei. Chinese officials are pushing for that replacement.
Some Chinese firms that produce or process commodities, a staple for manufacturing, may default on debt obligations, in turn lowering share prices, Dialdas predicted.
And China could devalue the tightly controlled yuan currency again in 2016 to help struggling exporters. China's devaluation in August hit global markets.
Compounding concerns, consumers daunted by GDP growth that has slowed over the past five years to around 7% aren't buying as much as Chinese officials want. Beijing hopes to turn spending into a new economic pillar.
Authorities are also still chasing insider trading and fraud among local securities brokers, another market destabilizer at least in the short term. Authorities have tried a series of measures since the mid-year share price fall to control volatility.
The benchmark Shanghai Shenzhen CSI 300 index has accordingly gained 23% since hitting a trough in August.
Individual foreign investors are barred from trading Chinese "A" shares but may buy into China funds offered by some of the 277 offshore institutions with foreign currency quotas from Beijing for equities trade.
Investing in China Stocks Through ETF's
Offshore investors can invest, for example, in the Invesco China Focus Equity Fund or Goldman Sachs China Equity Fund Class "A" Shares (GNIAX) . Exchange-traded funds include the iShares FTSE/Xinhua China 25 ETF (FXI) and the KraneShares Bosera MSCI China A ETF (KBA) .
Stubborn bears aside, a few young bulls are being born. Some investors take China's broad crackdown on corruption as a sign of a cleaner market. Blue chips, banks and telecom firms are trading at "good value" despite higher prices among smaller-cap stocks, said Michael McGaughy, a personal investor working in Hong Kong's finance industry.
Stocks may peak in the first quarter of 2016 on "destocking" after the long Lunar New Year holiday in February, said Andrew Tsai, economist with KGI Securities Investment Advisory in Taipei. Foreign institutional funds would buy blue chips into the second quarter but high-valuation, high-growth shares would face selling pressure, he said.
"Money can be made investing in 'A' shares but only tactically," said Alicia Garcia Herrero, chief Asia-Pacific economist with French investment bank Natixis.
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What Is An Exchange Traded Fund?
An exchange-traded fund or ETF is an investment vehicle traded on stock exchanges, much like stocks or bonds. An ETF holds assets such as stocks, bonds, or futures. Institutional investors can redeem large blocks of shares of the ETF (known as "creation units") for a "basket" of the underlying assets or, alternately, exchange the underlying assets for creation units. This creation and redemption of shares enables institutions to engage in arbitrage and causes the value of the ETF to approximate the net asset value of the underlying assets. Most ETFs track an index, such as the Dow Jones Industrial Average or the S&P 500.
An ETF is Like a Mutual Fund and a Closed End Fund
An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be purchased or redeemed at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which trades throughout the trading day at prices that may be substantially more or less than its net asset value. Closed-end funds are not considered to be exchange-traded funds, even though they are funds and are traded on an exchange. ETFs have been available in the US since 1993 and in Europe since 1999. ETFs traditionally have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively-managed ETFs.
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