November 12, 2010 (Chinavestor) Chinese investors got spooked on Friday as fears from further monetary tightening and a possible currency war with the U.S. spread. The Shanghai Composite Index (SHA:000001) tumbled 162.3 points or 5.3%, the most for the year while the Hang Seng Index (INDEXHANGSENG:.HSI) fell 477.7 points or 2.0%. The sell-off was universal in both markets, each and every component of the 42 member Hang Seng Index (INDEXHANGSENG:.HSI) fell while only three out of the 50 largest component of the Shanghai Composite Index (SHA:000001) managed to stay in the black. Energy stocks fell as price of oil plummeted. Key stock of the day included China Eastern Airlines (NYSE:CEA), China Southern Airlines (NYSE:ZNH), China Mobile (NYSE:CHL) and Huaneng Power International (NYSE:HNP). Looking at NYSE cross-listed components of the Hang Seng Index (INDEXHANGSENG:.HSI), yesterday's winners turned to the today's losers. H-shares of China Eastern Airlines (HKG:0670) fell 5.2% followed closely by China Southern Airlines (HKG:1055). China Unicom (HKG:0762), the best performing telco on Thursday, tumbled 4.9%, the most from the sector. China Mobile (HKG:0941) managed to shed only 1.9%.
Petrochina (SHA:601857), the best stock among the 50 largest Shanghai Composite Index (SHA:000001) components on Thursday, declined only 1.6% on Friday. But that wasn't much remedy for the index itself, stock that fell outnumbered those that advanced twenty to one. Part of the sell-off is attributed to further monetary tightening as China is fighting inflation, but investors kept a watchful eye on the G-20 summit there the U.S. is trying to build pressure on China to raise the Yuan. If unsuccessful, a possible currency and trade war might just escalate, a scenario investors didn't want to face.
Looking at the performance of the components of key Chinese ETFs, large caps experienced a heavy sell-off casting shadow over the performance of the iShares FTSE/Xinhua 25 Index (NYSE:FXI). As the following chart testifies, each and every component of this ETF fell, something we haven't seen in 2010 yet. Huaneng Power (HKG:0902) and China Mobile (HKG:0941) mitigated the fall but China Shenhua (HKG:1088), the largest Chinese coal miner, and China Unicom (HKG:0762) fell hard. Small cap investors don't have much reason to cheer either, most components of the Guggenheim China Small Cap ETF (NYSE:HAO) tumbled.
If components of the Hang Seng Index (SHA:000001) or the Hang Seng Index (INDEXHANGSENG:.HSI) can serve as a proxy for ADR trading, China Eastern Airlines (NYSE:CEA) and its larger rival China Southern Airlines (NYSE:ZNH) are headed to a big gap down on the NYSE. If anything, China Mobile (NYSE:CHL) and Huaneng Power International (NYSE:HNP) have a chance to weather the storm relatively well.