An exchange-traded fund of technology stocks is providing the highest returns of China-focused ETFs in the U.S. as the nation’s growing middle class stokes demand for smartphones.
The Guggenheim China Technology Exchange-Traded Fund Trust 2 returned 6.9 percent this year, outperforming all Chinese ETFs listed in the U.S., according to data compiled by Bloomberg. NQ Mobile Inc. surged 43 percent after raising its sales outlook last week, while NetEase Inc., China’s second-largest online games website operator, jumped to a four-month high. The Bloomberg China-US Equity Index of the most-traded Chinese equities in the U.S. rallied for the first week in five.
China had 1.1 billion mobile subscribers through January, up 52 percent from 2010, data compiled by Bloomberg show. Fourth-generation mobile services will probably be widely available in about a year, Industry and Information Technology Minister Miao Wei said March 8. The country has pledged to support greater urbanization, with as many as 300 million people to move from the countryside by 2030, Organization for Economic Cooperation and Development estimates show.
“The penetration is increasing and the potential there still has a lot of room to grow,” Michael Ding, the lead manager of the China Region Fund at U.S. Global Investors Inc., which oversees $2.2 billion, said by phone March 7 from San Antonio, Texas. “The growing middle class of course will help because of their increasing purchasing power. Mobile shopping is a new way of life.”
The Guggenheim China Technology ETF beat a 0.6 percent jump in the Guggenheim China Real Estate ETF and the 0.3 percent advance in the Global X China Industrials ETF, data compiled by Bloomberg show. The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., gained 1.2 percent last week to $39.08, and is down 3.4 percent in 2013.
Smartphones provide a way for technology companies from mobile game developers to Internet search engine operators to engage China’s growing consumer class, Ding said.
“On smartphones you can play things, do social networking,” Ding said. “It’s an emerging opportunity.”
NQ Mobile, China’s biggest mobile-phone security company, raised its 2013 sales outlook March 6 to as much as $183 million from an earlier forecast of up to $155 million. The Beijing-based company also unveiled a partnership with Mexican billionaire Carlos Slim’s America Movil SAB to provide products for security, privacy and family protection to subscribers in Latin America. NQ’s American depositary receipts soared to $9.86 in a record weekly gain.
NetEase, based in Beijing, rallied 7.1 percent to $54.23 in New York last week, the highest close since Nov. 8.
Phoenix New Media Ltd. gained 1.8 percent to $4 March 8, the highest price since Aug. 13 amid trading volumes more than two times the daily average over the past three months. Deutsche Bank AG raised the ADRs to buy from hold. The Beijing-based provider of TV and mobile news reported fourth-quarter adjusted earnings of 35 cents per ADR March 6, beating the average of two analysts’ projections for adjusted EPS of 17 cents.
Hollysys Automation Technologies Ltd. rose for the first week in three as the Chinese government said that it’s seeking to open new railway lines in 2013. The ADRs jumped 8.9 percent to $13.35 last week, the steepest advance since November.
China Lodging Group Ltd., which runs the nation’s fourth-largest economy hotel chain, tumbled 8.1 percent last week after reporting fourth-quarter net income that was 36 percent below the average of four analysts’ estimates compiled by Bloomberg. The ADRs rebounded March 8, adding 4.4 percent to $17.24, the biggest jump since Jan. 14.
ADRs of WuXi PharmaTech Cayman Inc. climbed 2.6 percent to $17.75 March 8. The Shanghai-based provider of pharmaceutical research forecast 2013 adjusted earnings of $1.49 to $1.53 per ADR, above the average $1.46 per ADR expected by analysts.
“The Chinese consumer’s disposable income growth is pretty robust, and stocks of companies that are consumer-facing look like they’re reporting good results,” Charlie Awdry, a portfolio manager for Henderson Global Investors’ 500 million pound ($746.4 million) China Opportunities Fund, said by phone from London March 8. “There’s a really good long-term growth driver there.”
Suntech Power Holdings Company Ltd., the largest solar-panel company by shipments in 2011, jumped 3.3 percent to $1.26 March 8. The ADRs pared their decline last week after the company reached a settlement with an affiliated company, GSF Capital Pte Ltd., and a former sales agent, Javier Romero, involved in a potential fraud.
The Hang Seng China Enterprises Index jumped 1.5 percent to 11,484.35 March 8 for a weekly advance of 1.2 percent. The Shanghai Composite Index of domestic Chinese shares slid 0.2 percent to 2,318.61, capping a 1.7 percent decline for the week.