|AlphaShares Indexes||May 2009||2009||1 Year||3 Year|
|AlphaShares China All-Cap Index||17.82%||39.64%||-21.49%||18.81%|
|AlphaShares China Small-Cap Index||26.14%||59.09%||-11.80%||5.47%|
|AlphaShares China Real Estate Index||31.19%||61.29%||-14.63%||11.03%|
|FTSE/Xinhua China 25 Index||15.81%||30.03%||-25.19%||16.21%|
|CSI 300 (A-Shares)||5.14%||51.72%||-22.29%||33.40%|
The AlphaShares China All-Cap Index gained +17.82% in May. For the second month in a row, all sectors posted positive returns. Chinese Real Estate stocks were up +31.19% (as measured by AlphaShares China Real Estate Index) due to strong residential property sales and low interest rates. The Information Technology sector was the best performing sector (+35%) followed by Consumer Discretionary (+26%) and Materials (+26%). Similar to April 2009, Telecoms and Utilities continued to lag, gaining (+10%) and (+3%) respectively.
As China-Taiwan relations improved via the China Mobile/Far EasTone deal in April, investors have hopes of improving China/US relations as Timothy Geithner headed to Beijing at the end of May. The Treasury Secretary hopes to urge leaders to fundamentally alter the export-oriented economy to rely less on international sales and to depend more on sales to domestic consumers. In meetings with Chinese President Hu Jintao and Premier Wen Jiabao, Mr. Geithner is expected to reiterate US support (and gratitude) for the significant stimulus package China has implemented to combat the global recession.
Fiscal stimulus is driving accelerations in government-supported categories, with transportation, power/electric/utilities, housing, and health care all being targeted for expansion. Consumer spending continues to grow strongly, paced by record high car sales (assisted by the government’s sales incentives) as well as a solid expansion in housing-related items.
As global volatility continues to ease, China’s volatility, as measured by the AlphaShares Chinese Volatility Index (CHIX 41.7) still remains high relative to the S&P 500 volatility index (VIX 28.9), closing the month at a 35.4% premium.
|Jonathan J. Masse, CFA||Dr. Burton G. Malkiel|
|Senior Portfolio Manager||Chief Investment Officer|