Hong Kong's Hang Seng will be closed for three days next week
while the Shanghai Composite will be closed the entire week in
observance of the Chinese New Year.
With Chinese data economic data improving, but China
showing signs of wilting, investors are faced with an interesting
near-term conundrum: Buy or sell ETFs tracking the world's
As participants in the financial markets frequently note, past
performance is no guarantee of future returns, but it is worth
noting that human behavior does not change and patterns repeat.
That is to say it is time to have a look at how some marquee
China ETFs have performed immediately following the Lunar New
iShares FTSE China 25 Index Fund (NYSE:
) The iShares FTSE China 25 Index Fund is a credible option to
start with not because it is the biggest China ETF, but because
it is the oldest. That means there are plenty of post-Chinese New
Year performances to evaluate. This year will be the ninth time
Lunar New Year has been around for.
FXI traded sideways for about the first month after its first
Chinese New Year in 2005 and in 2006 the fund made a small gain
following that new year celebration. In 2007, FXI dropped a bit
after the Chinese New Year, but that dip proved to be a buying
opportunity proceeding one of the ETF's best multi-month
As the global financial crisis got going in early 2008, FXI
suffered a double-digit loss following the Lunar New Year. The
following year, the ETF took a small loss as U.S. stocks were
attempting to put in a bottom. In 2010, FXI delivered returns of
about 14 percent over the six weeks following the Chinese New
Year. The following year was decent as well with FXI jumping from
just under $43 to $45.50 in the six weeks following the
Last year, FXI took a small loss after the holiday, which was
a sign of ugliness to come. However, in three of the past four
years, the largest China ETF has performed well following the
Chinese New Year.
Guggenheim China Small Cap ETF (NYSE:
) HAO is the dominant fund among China small-cap ETFs and also
offers a decent track record of post-Chinese New Year
performances as 2013 will be the sixth for the fund. HAO's first
year in business and that was a case of bad timing as the fund
slid about 25 percent in the six weeks following that Chinese New
Like FXI, HAO traded lower following the holiday in 2009, but
that gave way to HAO more than double from March to August of
that year. The following year was decent for HAO as it gained
about $2 over the six weeks following the holiday and that would
be roughly the loss the ETF took following the 2011 Lunar New
Year. HAO gained about eight percent in six week's following last
year's Lunar New Year.
Market Vectors China ETF (NYSE:
) The Market Vectors China ETF, which uses various swaps and
derivatives to deliver investors exposure to China's
hard-to-access A-shares market, is an interesting case study even
though it has only been around for two Chinese new years. In
2011, PEK was a decent post-holiday performer, but the ETF really
impressed last year, gaining 11.7 percent in less than five weeks
following the holiday.
While monthly seasonal trends are not easily spotted in
China's A-shares market, there "appears to be a pattern of higher
returns than average between February and June and lower returns
than average between July and January,"
according to the academic work Seasonality in the
Returns, Volatility and Turnover of the Chinese Stock Markets
That paper refers to the Chinese New Year as the Spring
Festival and highlights the notion that the festival meaningful
to A-shares returns.
"Returns before the Spring Festival holiday are significantly
higher than average. Most of this comes from the trading day
before the holiday (measured by the open-to-close return), which,
on average, is 0.84% higher than the average daily return. Using
close-to-close returns, it appears that returns are also higher
than average on the day immediately after the Spring Festival
holiday, which is in contrast with evidence for other markets,
where post-holiday returns are usually lower," according to the
Investors should note the paper, authored by Zhiguang Cao,
Richard D. F. Harris and Anxing Wang, was published in 2007 using
a data set running from 1994 to 2006.
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
Gain access to more investing ideas, tools & education.
Get Started on Marketfy, the first ever curated
& verified Marketplace for everything trading.