Got China ETFs? Watch Out

Credit crunch could squeeze Chinese companies

Woman in front of a Shanghai stock board (Photo: AP) Woman in front of a Shanghai stock board (Photo: AP)

News that the Chinese economy faces much uncertainty and that its lending rates are rising hurt U.S. stock markets on Monday. But Chinese stock markets and equities, of course, got hit as well.

The Shanghai Composite Index fell 5.3% with Hong Kong’s Hang Seng dropping 2.2%.

The move to curb credit in China could threaten Chinese companies, "especially those in the private sector with weak credit quality, because it heightens the risk that banks will scale back lending to those companies,” according to analysts at Moody's Investors Service.

U.S. investors holding China- and Asia-themed ETFs may want to pay attention to how the latest news in the region is affecting these products, given some of the discrepancies in their performance.

As for the major China-focused ETFs, the SPDR S&P China (GXC) was trading down nearly 2% on Monday, while the iShares MSCI China Index (MCHI) declined about 1.6%. Year to date, the SPDR ETF is off about 15%, and the MCHI is down 16%. For short-sellers, however, there’s good news.

The ProShares UltraShort FTSE China 25 ETF (FXP) is having a nice run. It’s trading up 4%, while the broader U.S. markets are off about 1%.

Year to date, the ProShares ETF has improved more than 40%. That’s beating the performance of both the Dow Jones Industrial Average and S&P 500, which have ticked up to the mid-teens so far in 2013, but more than 25%.

Its counterpart, the iShares FTSE China 25 Index ETF (FXI) is down roughly 16% since Jan.1, though it is up about 4% for the past 12 months.

The Guggenheim China Small Cap ETF (HAO) is performing much better than this index product for the past 12 months, when it rose 15%. It is, however, down about 7.5% so far in 2013.

In the nearby Hong Kong market, the iShares MSCI Hong Kong Index  (EWH) has ticked up 17% in the past 12 months. It’s down about 6% in year to date, however.

The iShares MSCI Taiwan Index (EWT) has declined about 6.5% year to date. For the past 12 months, though, it has improved roughly 17%.

In the mutual-fund world, the Fidelity China Region Fund (FHKCX) has moved up 20% for that past 12 months. It is flat year to date in 2013.

The Drefus Greater China Fund (DPCAX) is also up 20% since late June of 2012. So far this year, it has declined 4%. The ProFunds Ultra China Fund (UGPIX) improved 8% in the past 12 months, and fell 15% since Jan. 1; it is an ultra-long product.

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Check out Mobius: China to Experience U.S.-Like Housing Crisis on AdvisorOne.

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