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ETF Trends

Major News and Events

Companies in ChiNext Small-Capitalization Stocks Have Never Been So Big:

The Mainland ChiNext Index surged 80 percent in the 12 months through mid-January as the median market value of its components jumped to a record $1.1 billion on Jan. 15 according to Bloomberg. That’s the highest ever relative to the nation’s benchmark Shanghai Composite Index (SHCOMP), which has a median value of $784 million, and the biggest among small-cap measures in the world’s 10 largest equity markets. Gauges for small companies in Brazil, Russia and India have dropped at least 10 percent during the same period.

President Xi Jinping is seeking to boost the technology and services industries, which comprise about half of the ChiNext’s weighting, and curb the role of state-owned companies as growth in the world’s most-populous nation slows. While UBS AG says ChiNext valuations may fall as a flood of new share sales diverts funds, Bocom International Holdings Co. and Dragon Life Insurance Co. predict a further rally as earnings increase and the government encourages ownership of small companies.

Money managers in China have increased positions in smaller companies to about 33 percent of holdings, a six-month high, while allocations to large-caps have fallen to 25 percent, according to Hao Hong, chief China strategist at Bocom International, who cited Wind data. The ChiNext may jump as much as 29 percent this year as earnings grow at a 20 percent pace and more funds purchase the shares, Hong said.

Premier Li Keqiang has signaled he will tolerate slower growth to shift the economy away from the state-led stimulus that sparked the 2009 recovery, to a more sustainable model based on services and consumer demand.

Instant-Messaging App Usage Takes Off in China:

The number of users of instant-messaging apps in China has climbed 14% (64.4 million), to 532 million, prompted by the fast growth of China’s mobile Internet, according to a recent report from the official China Internet Network Information Center (CNNIC) and highlighted by Bloomberg.

The total number of mobile Internet users reached 500 million as of the end of 2013, a whopping penetration rate of 81%, data showed. WeChat, an increasingly-popular instant-messaging service for mobile platforms developed by China’s Internet giant Tencent appears to have been one of the main beneficiaries of this upswing.

WeChat’s popularity is considered to be due in part to its privacy features. A user can only see a post after subscribing to a public account or becoming friends with a private user. And the post can only be forwarded to a user’s own circle of friends.

Given the trend, analysts are bullish on the future development of mobile Internet apps in China.

In a report Friday, Barclays highlighted the high popularity of China’s mobile IM apps like WeChat, and predicted that “the faster growth rate of mobile Internet, e-commerce and online video” would be key themes in the Chinese Internet industry this year.

“As low-end smartphone penetration continues to rise this year, we expect mobile Internet usage to continue to outpace the growth of traditional PC Internet users,” Barclays said.

China’s Private Company R&D Spending Grows:

In a study conducted by PricewaterhouseCoopers and reported in the Wall Street Journal, China’s technology sector is reaching a critical mass of expertise, talent and financial firepower that could realign the power structure of the global technology industry in the years ahead.

“Traditionally Chinese companies were fast followers, but we are starting to see true innovation,” said Colin Light, partner at PricewaterhouseCoopers.

The rise of China’s tech industry is fueled in part by its growing investment in research and development. According to a study released in December by U.S.-based Battelle Memorial Institute, R&D spending in China will likely reach $284 billion this year, up 22% from 2012. That compares with just 4% growth forecast in the U.S. to $465 billion for the same period. It forecasts China will surpass Europe in terms of R&D spending by 2018 and exceed the U.S. by 2022

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