Fundamental Analysis
Market Outlook
Remain constructive on the Chinese 'A' shares market. The strong China PMI points to continued improving economic conditions going forward. China's relatively resilient growth versus the rest of the world and strong fundamentals such as high savings rate and low public debt will stand out in the world facing public debt crisis and fiscal consolidation that will stifle growth.
The recent interest rate hikes and policy tighthening do not considered as negative in the medium to long term. It is a good pre-emptive move by the government in the context of an improving economy and potential inflation pressures. Rates hikes in a robust economy can still be good for markets as what happened for China in 2006 and 2007. In fact, it will be positive on earnings for insurance companies and the large banks. The steady appreciation of the Rmb will also make Chinese assets more attractive. Market valuations remain attractive compared to historical levels, as well as relative to regional markets.
Nonetheless, inflation concerns will be a central theme in the near term. The urgency of Chinese authorities in combating inflation goes beyond just financial implications - it involves more societal and national stability concerns of the government as the impact of inflation is strongest on the price of food items, the important necessities of its citizens. In order to prevent potential unhappiness and discontent among its citizens and address the issue immediately, the authorities will definitely be closely monitoring the impact and success of the tightening measures announced thus far. If attempts to contain inflation are unsuccessful, other possible measures to be implemented would probably involve some form of price controls on key food necessities.
Portfolio Review
SSE 50 Index includes the constituents in the Consumer Discretionary, Consumer Staples, Energy, Materials and Telecommunication Services sectors all posted positive returns. The constituents in the Financials and Industrials sectors posted mixed results, while the constituents in the Utilities all fell.
Prospectus from UOB:
http://www.uobam.com.sg/uobam/assets/pdfs/prospectus/sse50_etf.pdf
Technical Analysis
Technical Chart for SSE Composite Index with MA indicators - it shows the index line continuously on uptrend with 200MA at 2735 points, the resistent level will be at 3000 points and the mid-term support level will be at 2850 points.
Technical Chart for SSE 50 China ETF performance with MA indicators - it shows the price line has cut & crossed above the 200 MA line at 2.03 after rebound from the formation of double dip. Historical price at Jan 2010 is at 2.54 as compared to current price at 2.06 which has a potential upside of 23%.
Conclusion
SSE 50 China ETF is a good alternative to invest into China stock market if you are not familiar with the individual China A shares. Due to potential growth for emerging markets like China which has taken over Japan as World No.2 largest GDP country (behind US) and the appreciation of Renminbi currency, a potential record high for SSE Composite Index in this year 2011 is possible after the depression & dip from previous year 2010. As a result, I will recommend to invest into SSE 50 China ETF as a ride follower to the growth of China market.
Hi, thanks for your informative post. I'm deciding whether to invest in this China ETF, but I find it strange that there's such a big discrepancy between the SSEC's actual performance and the performance of this ETF. E.g. the SSEC is at ~2.7k now but the price of the ETF is only ~1.9? Is this normal?
ReplyDeleteWould you mind sharing your thoughts about this?