Concerns have been building over the Chinese market lately,
with many funds tracking the country facing nearly double digit
losses over the past three month time period. In fact, the most
popular ETF tracking the nation,
, has lost about 7.2% in the past 90 days, suggesting some
serious pain for the country's biggest stocks.
Bad news lately
The main reason behind the country's slump is the financial
sector. Low rates pushed investors into risky ventures, but as
short-term interest rates have been rising, it is becoming clear
how shaky the Chinese economic foundation really is.
This is especially true now that the country's economic growth
is expected to slow down further this quarter, which is putting
extra pressure on lending, and the financial sector in general.
Given this situation and the optimism over the U.S. market, many
are having a hard time looking beyond domestic shores for
Is the Tech ETF Signaling Trouble Ahead?
Despite this doom and gloom over the broad Chinese economy,
investors have seen a bright spot in the nation; technology. This
corner of the market has been relatively immune from the
financial woes, and it has managed to prosper despite the overall
As evidenced by having the world's fastest supercomputer,
Tianhe-2, China is also starting to make a name for itself in the
technology world. This is particularly true given that the new
system was only expected to be ready in 2015 and came online
early to surpass estimates.
Furthermore, companies like Qualcomm and Huawei, have shown
considerable interest in China. A leading Internet company,
Tencent, has signed a deal to build West China's first cloud
computing center (see
Three Tech ETFs Still Going Strong
The Chinese market is also expected to witness a surge in PC
sales. On June 24, Microsoft signed an anti-piracy deal with
Samsung and HP to install genuine Windows and Microsoft Office in
upcoming systems. This long awaited pact gives positive vibes for
investors in the Chinese technology market.
Given this, investors may want to consider Chinese tech
as better plays in the current environment. These funds have
arguably better exposure profiles and may be interesting choices
in this environment for those seeking to still make a play on the
world's second biggest economy:
GUGGENHEIM CHINA TECHNOLOGY ETF (AMEX:
Launched in Dec 2009, CQQQ tracks the AlphaShares China
Technology Index, which measures the performance of the
information technology sector in China and Hong Kong.
The fund holds 38 stocks in total and the top ten stocks make
up 61% of the fund.
Mid cap comprise 68% while large cap makes up 16% of the fund,
suggesting a good dispersion among cap levels. The fund
charges 70bps in fees, and has a decent yield of 1.70%,
especially considering it is a tech-focused ETF (read
New Leadership in the Tech ETF Space?
The ETF is more volatile compared to the S&P 500 index,
but CQQQ has done well nonetheless. CQQQ currently has a
Zacks Rank of #3 or 'Hold', and has added over 13% in the past
GLOBAL X NASDAQ CHINA TECHNOLOGY ETF: (NASD:
Launched in Dec 2009, QQQC replicates the NASDAQ OMX China
Technology Index, which tracks the performance of the technology
sector in China. QQQC is a large growth fund and has an AUM of
The fund holds 29 stocks and the top ten holdings contribute
63% to the fund. The market capitalization of the fund in mid
caps is 64% and small cap is 20%.
The product charges 65bps in fees, but it has a low yield
of .52%. Although the fund is more volatile compared to the
S&P 500 and has a high beta of 1.24%, the fund is capable of
holding its ground. Currently, QQQC has a Zacks Rank of #3 or
'Hold', and has added about 18.9% in the past three months.
The Bottom Line
Negative sentiments about the Chinese markets have strongly
impacted the Asian Stock markets. With China's money market rates
easing and the rate falling to 5.73%, the banks are on pins and
needles. The Chinese market is also signaling bearish
trends, and market experts predict a further slowdown (See
The Top Choice in the Tech ETF World?
Despite this, the technology sector is expected to weather the
storms. The space has handily outperformed FXI in the past three
months, as well as the S&P 500, and it could remain a decent
choice for those seeking to make a play on the shaky market with
a solid exposure profile, as evidenced by its recent
performance and better sector fundamentals.
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GUGG-CHINA TEC (CQQQ): ETF Research Reports
ISHARS-CHINA LC (FXI): ETF Research Reports
GLBL-X NDQ CHIN (QQQC): ETF Research Reports
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