Reviewing China H-Share Fund

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 from FXI.

The chart above (click to enlarge) has a few things going on. The black line represents iShares China (FXI)and the yellow line represents another H-Share ETF that trades in Hong Kong (HSXUF.PK). They trade almost identically.

Looking under the hood, SNO is 50% financials while FXI is 41% financials. In energy, SNO is 23% and FXI is 16%. The most glaring sector difference is telecom in which FXI has 16% and SNO has 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, but my primary exposure was Sinopec (SNP). When the China theme was newer I was less concerned about the heavy exposure to financials. At this point the ETFs would not be my first choice because of their heavy financial exposure.

The lack of transparency from Chinese companies that bothers people would seem to apply even more to banks. Additionally, given how relatively new capital markets and mortgages are in China, 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 the like.

Also, on the above chart there is a small holding in SNO called China Molybdenum (CMCLF.PK) 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 they initiated a dividend. China is one of the big sources of molybdenum and China Moly appears to be a big fish in this pond along 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 was 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 willing to share, please leave a comment.