|AlphaShares Indexes||July 2009||2009||1 Year||3 Year|
|AlphaShares China All-Cap Index||11.37%||61.07%||1.51%||23.38%|
|AlphaShares China Small-Cap Index||16.09%||86.46%||22.54%||12.03%|
|AlphaShares China Real Estate Index||10.62%||81.15%||12.24%||14.44%|
|FTSE/Xinhua China 25 Index||10.34%||50.37%||-5.06%||19.69%|
|CSI 300 (A-Shares)||17.92%||105.21%||33.16%||49.88%|
The AlphaShares China All-Cap Index gained +11.37 in July. China Mobile weighed on index returns this month gaining only 4.90%, as June subscriber additions were weaker than May, but the pace of the decline was moderating.Information Technology led sector returns gaining 22.40%. Consumer Discretionary increased by 19.70%, benefiting from strong auto sales and improving domestic demand. The Chinese government released details of the $700 million auto replacement and subsidy program. Chinese automobile sales maintained their strong momentum in June as 1.14 million cars were sold, up 36.5% year-on-year, outpacing the US once again.
In contrast to the critical tone set during the presidential campaign, the Obama administration held its first high-level discussion with Chinese officials. The US-China Strategic and Economic Dialogue was held to improve bilateral cooperation, and to resolve issues concerning the global economic crisis, climate change, and nuclear proliferation.
Similar to a banker visiting an overextended borrower, Chinese economic leaders reiterated to their hosts the importance of managing the growing US debt. China has more than $2 trillion in reserves that are held in US Dollar assets. While China’s leadership looked for assurances on US inflation, the American team, co-chaired by Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton, continued to press China to turn its economy away from a reliance on exports and more towards domestic consumption. Geithner did not address China’s currency, despite his comments in January that China was keeping the Yuan artificially low to keep its exports more competitive. The Obama administration warned that there has been a fundamental shift in the US economy, noting that household saving is increasing, and spending will not reach 2006-07 levels (as a percentage of income). Chinese officials indicated a desire to make their economy less dependent on exports, however many Chinese citizens are still inclined to save their moneyas the country lacks social safety nets such as: comprehensive health-care, social security, and a formal pension system.
US volatility eased -1.63% to 25.92 (VIX) as domestic companies posted strong earnings, while China Volatility, as measured by the AlphaShares Chinese Volatility Index (CHIX) climbed 5.86% to finish at 38.49 as markets experienced large price swings at the end of the month. During the expiry roll on July 17th, FXI near-the-money calls yielded 3.88%, versus SPY calls that yielded only 2%.
|Jonathan J. Masse, CFA||Dr. Burton G. Malkiel|
|Senior Portfolio Manager||Chief Investment Officer|