Friday, May 8, 2009

why CAF traded at a very high premium vs. 2823.HK A-50

Latest NAV for each ETF:

CAF: US$390M
2823 A-50: US$4000M

And the 3-mth average daily trading volume:

CAF: 300K shares (ie, US$11M traded daily based on yesterday closing price, which is close to nothing versus the total daily transaction in NYSE)

2823 A-50: 122M shares (ie, US$183M traded daily based on yesterday closing price, which is around 1.5% of total transaction traded in HK Stock Exchange, though it is not a big % but is still siginificant given there are over 2000 stocks listed in HK )

My interpretation is:

1) both listed ETF are traded mainly by retail investor rather than institution from the size of the transaction we observed

2) for 2823, the 'price discovery' is more efficient from the transaction amount it traded in HK vs CAF in US

3) 2823 is a VERY popular ETF listed in HK, widely covered by financial media, that explains the trading volume, however, CAF I believe is not popular at all in US relatively speaking, that also explains the inefficient price dicovery process

So I would conclude if we want to invest rather than speculate the Chinese economy growth, 2823 is a better choice.

If we want to trade the volatility, CAF will be the right choice.