|AlphaShares Indexes||September 2009||2009||1 Year||3 Year|
|AlphaShares China All-Cap Index||5.09%||57.30%||35.33%||20.48%|
|AlphaShares China Small-Cap Index||5.72%||80.35%||62.48%||9.05%|
|AlphaShares China Real Estate Index||8.07%||72.69%||56.85%||10.67%|
|FTSE/Xinhua China 25 Index||4.23%||46.23%||25.14%||16.97%|
|CSI 300 (A-Shares)||6.23%||65.24%||34.38%||35.36%|
The AlphaShares China All-Cap Index rebounded in September, gaining +5.09%. China’s equity markets cooled towards month-end on speculation that the market may stall in the short-run due to the sudden rise in supply in the A-Shares, H-Shares, and N-Shares markets.
In the domestic A-Shares market, the floatable market cap rose 20% in the third-quarter due to (i) locked-up legal person shares gaining floatable status, (ii) existing A-shares right issues, and (iii) IPOs of new A-Shares. With regard to Chinese shares in the international markets, several IPOs began trading. However, many of them fell below their IPO price on the first day of the listing, such as Peak Sport Products (1968 HK; -17.07%), Shanda Games ADR (GAME US; -14.00%), and Metallurgical Corp of China (1618 HK; -11.65%; though it’s A-Share listing (601618 CH) gained +28.04% its first day). One notable exception was the IPO of the SinoPharm Group (1099 HK) which gained +15.75% in its debut, assisted by the issue being reportedly oversubscribed with over $28 billion of institutional orders.
In sector-specific news, China continued to show its leadership in green technology. China’s President Hu Jintao, visiting the United Nations, promised that China would continue to “integrate climate change” into its economic planning. First Solar, based in Tempe, Arizona announced Chinese government approval for a giant 25 square mile solar field in Inner Mongolia that would be the largest in the world. First Solar CEO Mike Ahearn commented “The Chinese government is further along in its thinking about solar than we’ve imagined. There’s an advantage to planning this from the top. The speed and execution advantage is in China.” US-based climate commentator Joe Romm added “China is going to eat our lunch and take our jobs on clean energyan industry that we largely inventedand they are going to do it with a managed economy that we don’t have and don’t want.”
On the Chinese economic front, August data delivered a mixed message. Industrial production beat expectations rising +12.3% in August, compared to +10.8% in July. The official NBS manufacturing PMI series was reported at its highest level since April 2008. However, exports disappointed, falling -0.1% in August, while imports fell notably as commodity imports lost some of the gains seen earlier this year.
The AlphaShares China Volatility Index (CHIX) traded at its lowest levels since June 2007 to close the month at a very complacent 29.75. China investors took advantage of the cheaper price for “portfolio insurance” as the average put/call ratio in FTSE/Xinhua options jumped to 2.84 from 2.33 in August and 1.39 in July. The spread between the CHIX and the US-traded VIX closed at 16.18. This is the lowest premium between the country volatility indexes since September 2004, indicating that investors are perhaps more confident in the China equity rally than they are in US one, as evident by the VIX closing at 25.61 to end the month.
|Jonathan J. Masse, CFA||Dr. Burton G. Malkiel|
|Senior Portfolio Manager||Chief Investment Officer|