A Tale of Two Chinas
Wednesday, October 6, 2010 at 05:06PM With a decline of 18.9% YTD and a loss of more than 21% from its 52-week high, the bear market in China's Shanghai Composite Index has been well documented. However, while locally listed shares of Chinese stocks have been in a slump, their counterparts listed in the USA as ADRs have followed an entirely different path.
The chart below compares the performance of the Shanghai Composite Index to a basket of US listed Chinese ADRs since the start of 2009. In order to be included in the basket of ADRs, each stock had to have a market cap of more than $250 million at the start of 2009. Throughout much of 2009, both the Shanghai Composite and our basket of ADRs saw similar rallies, but from there the paths began to diverge. A little more than one year later, our basket of ADRs is once again above the level it was at when the Shanghai Composite peaked, while the Shanghai Composite languishes near its lows for the year.
Reader Comments (8)
same with every foreign (e.g swiss) companies listed as ADR : they're usually more expensive on the NYSE
you americans are cow boys
Libre, I'm not sure you understand your point. We're not talking about valuations. We're talking performance. Yes ADR's are often (although not always) more expensive relative to local listed shares. But ADRs' have performed better than domesticlaly listed companies.
Interesting. But it seems to me to really make the argument that ADR's are outperforming local listings, you should use only local securities that have ADR counterparts.
Isn'it due to fact that the USD dropped?
Bespoke: Libre was probably noticing that the currency exchange has been causing out performance of many shares on foreign exchanges due to the ADR. This probably is not the case with the Chinese stocks as the currency was pegged and/or moving very little.
One example is Novartis. NVS on NYSE and NOVN on SWX
1 month % 6 month % 1 year %
NOVN 3.13% 0.0% 8.43%
NVS 8.19% 8.98% 21%
That shows a significant out performance of the SWX listed shares, most probably due to the currency fluctuations embedded within the ADR.
This is actually not a very useful post. The composition of the ADR's and the composition of the shanghai composite are not the same. Pointless to compare two groups of arbitrary stocks.
Might as well compare german stocks listed as ADR's with the DAX. Just pointless exercise.
The charts only compare "performance", so the spread is caused by the collapsing dollar I guess.
The composition of $SSEC is heavily dominated by Chinese financials. It would be interesting to compare the list of all Chinese ADRs to $SSEC constituents. In general, $SSEC currently understates and distorts Chinese stock market performance due to lagging in financials (at least until yesterday). A better measure is the $CSI300 index and it's subcomponents. ADRs on the other hand, as well as the H-Shares, including FXI, tend to overstate, and sometimes understate, due to foreign demand issues. Looking at ADRs, SSEC, or FXI, does not give a good picture of Chinese stock market performance. Stick with CSI300.