Wednesday, May 21, 2008
I can remember seeing that the NETS line of ETFs had a China H-Share fund in the works and finally it listed under ticker SNO. Like Heather over at IndexUniverse I thought it would be very interesting.
After further review, I'm not so sure it is much different than FXI.
The attached chart has a few things going on but the black line represents iShares China (FXI) and the yellow line represents another H-Share ETF that trades in Hong Kong (the US pink sheet ticker is HSUXF). They trade almost identically.
Looking under the hood, SNO is 50% financials while FXI is 41% financials. Energy; SNO 23% FXI 16%. The most glaring sector difference is telecom which FXI has 16% and SNO is a little over 3%. This is mostly attributable to FXI's largest holding being a 10% weight in China Mobile (CHL), which I own for a couple of people, but since it isn't technically an H-Share it is not in SNO.
The largest names in SNO include a lot of banks you might have heard of if you watch CNBC Asia or pay attention to names that some US banks have invested in. Petrochina is also a heavily weighted name in SNO.
A while back I owned FXI personally, but my primary exposure was Sinopec (SNP). When the China theme was newer I was less concerned about the heavy exposure to financials but at this point the ETFs would not be my first choice because of the heavy financial exposure.
To the extent lack of transparency from Chinese companies bothers people this would seem to apply even more to banks. Additionally given how relatively new things like capital markets and mortgages are the chance of big mistakes happening within the sector does not seem like a stretch (it happened here and is still unwinding).
It seems easier to own things that you know people use like gas from the gas station, coal to heat their homes, cell phones and a few other things.
Also on the above chart is a small holding in SNO called China Molybdenum which has a pick sheet ticker of CMCLF. Molybdenum is used to strengthen steel. China Moly IPO'd a year ago April. The growth numbers from 2006 to 2007 were huge, debt plummeted and it initiated a dividend. China is one of the big sources of molybdenum and China Moly appears to be a big fish in this pond long with Shanghai listed Jinduicheng Molybdenum. I'd not heard of China Moly before now so I know nothing about it but it is interesting enough that I want to learn a little more.
I charted it above and also included Thomson Creek (TC) which is the only pure play I had been previously aware of. The two correlated very closely for a while but then diverged for reasons that are not obvious at first glance. My interest in learning about the company is not so much to buy it but to learn a little more about the space. I've read and heard some very bullish things about it over the last few months and I think learning more makes sense.
If anyone knows anything about China Moly and is will to share please leave a comment.