|AlphaShares Indexes||August 2009||2009||1 Year||3 Year|
|AlphaShares China All-Cap Index||-7.07%||49.68%||0.92%||19.84%|
|AlphaShares China Small-Cap Index||-8.51%||70.59%||22.74%||7.86%|
|AlphaShares China Real Estate Index||-11.79%||59.80%||8.09%||8.21%|
|FTSE/Xinhua China 25 Index||-6.70%||40.30%||-4.36%||16.33%|
|CSI 300 (A-Shares)||-24.20%||55.55%||18.44%||35.04%|
The AlphaShares China All-Cap Index declined -7.07% in August. China’s A-Shares market experienced a “correction” of 25%, as concerns about potential policy tightening, the quality of earnings, and an accelerated pace of IPOs all weighed on the local market. The Chinese IPO market reopened in July after a nine month government imposed hiatus. Everbright Securities raised over US $1 Billion in Hong Kong and speculation continued that China Mobile would seek an A-share listing in the near future. In addition, reports continued that foreign companies may also begin listing in the A-share market next year. Shanghai’s top economic policymaker was quoted as saying that foreign companies might list on the Shanghai Stock Exchange beginning in 2010, and HSBC was said to have retained CICC and Citic Securities to handle an A-share IPO.
On the economic front, China’s manufacturing expanded at its fastest pace in 16 months, as the economy maintained momentum after record lending in the first half of the year. The official Purchasing Managers’ Index rose to a seasonally adjusted 54 from 53.3 in July (a reading above 50 indicates expansion). The Chinese government continues to emphasize the quality and sustainability of growth with a shift in its mix towards consumptionwhich many believe will help the country achieve a better balance and more efficient growth.
Implied volatility was bid up along with the market early in the month. The AlphaShares China Volatility Index (CHIX) traded at a month high of 39.97, indicating option traders’ lack of conviction in the Hang Seng rallying past 21,000. However, investors seemed much more comfortable with the index range trading back below 20,000 by month’s end, as evidenced by the CHIX finishing at 34.29 (-10.91% from July), just off its 52-week low of 33.05 the day prior. China investors took advantage of the cheaper price in “portfolio insurance” as the average put/call ratio in FTSE/Xinhua options jumped to 2.33 in August from 1.39 in July.
|Jonathan J. Masse, CFA||Dr. Burton G. Malkiel|
|Senior Portfolio Manager||Chief Investment Officer|