US Investors Not Feeling the Chinese Stock Market Sizzle

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Includes: CAF, CHN, EWH, FXI, GCH, JFC, PGJ
by: Daniel Su

US investors in China stock mutual funds, ETFs and closed-end funds are disappointed with returns so far.

Since the beginning of the year until May 4th 07, the Shanghai index is up 43.57% and the Hong Kong index (Hang Seng Index) is up 4.38% (not including dividends). But US investors who invested in various China stock mutual funds, ETFs and closed-end funds are disappointed with their investments compare to Shanghai index returns.

Many mutual fund companies touted the substantial growth potential of China, so US investors have put money into various investment vehicles, and expect similar returns to Chinese local indexes; however, most of these investors do not know that whether their China funds are invested in Hong Kong, Taiwan listed companies, Chinese H shares, or ADRs. Few mutual funds actually invest directly in the Chinese A share market.

Using Morningstar.com database, among China focused mutual funds the best performing mutual fund year-to-date is Dreyfus premier Greater China Fund A [DPCAX], whichrewarded shareholders with 21.8% return (NYSE:NAV), not including sales charge. The lowest YTD return mutual fund is ING Greater China A [IFCAX], which rewarded shareholder with only 3.84% [NAV) return, not including sales charge.

For ETF funds investing in Chinese companies, returns have been rather anemic this year compared to the Shanghai index. iShares FTSE/Xinha China 25 Index (NYSEARCA:FXI) is down -1.12% YTD. iShares MSCI Hong Kong Index (NYSEARCA:EWH) is up 6.75%. PowerShares Gldn Dragon Halter USX China (NASDAQ:PGJ) is up 4.21%. Return figure is through May 2nd 07.

Some closed-end funds invested in Chinese companies are actually showing losses due to fluctuation of its premium/discount levels. Greater China Fund's (NYSE:GCH) YTD through 4-30-07 market return is -15.29%, NAV return is 11.63%.

China Fund's (NYSE:CHN) YTD through 4-30-07 market return is -1.11%%, NAV return is 23.58%.
Jardine Fleming China Region Fund's (NYSE:JFC) YTD through 4-30-07 market return is
โ€“11.4%, NAV return is .44%. This fund actually invests mostly in Hong Kong and Taiwan companies; only 4.5% of the portfolio is listed as Chinese companies.

Morgan Stanley China A Share Fund's (NYSE:CAF) YTD through 4-30-07 market return is 10.68%, but NAV return is whopping 53.76%. Again the difference is the fluctuation of premium/discount level.

Figures quoted in this article deemed reliable, but no guarantee of accuracy. Return data is based on Morningstar database, either end of April or May 2nd 07 figures.