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Can dragon breathe life into Chinese funds?

swon@globeandmail.com

What are we looking for?

How greater China equity funds fared in the Year of the Rabbit.

The screen

We ranked funds by the best returns since the start of the Chinese New Year on Feb. 3, 2011, to Jan. 20, 2012. The new Year of the Dragon began Monday. (U.S. dollar and duplicate versions of funds were excluded.)

What did we find?

The Year of the Rabbit did not turn out to be auspicious.

All funds lost money with Renaissance China Plus, a mutual fund, shedding the most with a 35-per-cent loss.

Two lower-fee, exchanged-traded funds (ETFs), however, emerged as the best relative performers. The iShares China ETF, which tracks 25 large companies, lost 6 per cent. Claymore China ETF, which holds 185 companies in the AlphaShares China Small Cap Index, shed 9.6 per cent.

Chinese stocks (including those listed in North America) took a big hit last year, partly on concerns about the euro-zone debt crisis and a slowdown in China's export-oriented economy. There were also worries about Chinese accounting standards in the wake of fraud allegations by short-seller Carson Block against Sino-Forest Corp., but which were denied by the forestry company.

"Basically, people were running away from risk" last year, and lots of smaller-company stocks in the Claymore ETF got pummelled, said Kevin Carter, a co-founder of AlphaShares LLC, a creator of indexes. The downdraft in Chinese equities also stemmed from so-called "window-dressing" by portfolio managers who often sell stocks with large losses in their funds at year-end.

In the first three weeks of this year, however, all the China funds are posting strong returns. The Claymore China ETF was leading the pack with a 13-per-cent gain to last Friday. "A lot of the Chinese companies that were badly beaten down have bounced up sharply," Mr. Carter said. "The artificial, window-dressing pressure is off the stocks."

Market observers also suggest that the rally is being fuelled by the Chinese economy growing more strongly than expected in the fourth quarter, and expectation that the Chinese government will introduce more economic stimulus this year to spur its economy. It's early days, but it looks as if investors are betting the Year of the Dragon will breathe more life into Chinese stocks.

*****

HOW GREATER CHINA EQUITY FUNDS FARED IN THE YEAR OF THE RABBIT

AssetsFeb. 3/11YTDTo Dec. 31, 2011
FundMER ($ mil.)to Jan. 20/1220126 months1 year3 years5 years10 years
iShares China Index0.8522.3-5.99%10.43% -14.22%-15.86%
Claymore China ETF0.716.5-9.64%13.03%-19.52%-19.15%
Investors Greater China A2.73121.6-11.69%6.72%-15.11%-17.83%-0.16%-4.64%
HSBC Chinese Equity-I2.69197.0-12.50%8.61%-16.80%-19.35%1.17%-4.58%
AGF China Focus Class3.11164.6-13.05%10.19%-19.75%-20.71%0.85%-4.82%6.48%
Fidelity China A2.6035.5-13.75%7.44%-16.79%-19.44%5.41%0.34%
Pro FTSE RAFI Hong Kong China Idx-A2.033.3-16.41%7.07%-13.30%-19.17%8.29%
Manulife China Class3.1046.3-18.08%7.64%-19.13%-22.25%2.54%-4.05%
Excel China3.4949.2-18.20%7.03%-20.95%-23.06%2.20%-5.60%0.34%
BMO Greater China Class2.7776.2-21.75%6.10%-22.35%-24.58%4.95%-3.47%
BMO GDN Greater China Cls Ad Srs2.782.4-21.77%6.10%-22.36%-24.60%4.97%
PowerShares Golden Dragon China Cl A2.001.9-22.17%10.30%-25.13%-26.32%
BMO China Equity Hedged ETF0.719.2-23.58%9.85%-28.33%-26.40%
Renaissance China Plus3.30100.9-34.87%6.59%-28.62%-37.76%3.31%-2.23%3.21%
Hang Seng Total Return Index-13.00%-17.92%1.79%-4.15%0.35%
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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