June 23, 2011 (Chinavestor) While world markets fell on news that the U.S. economic recovery will be slower and more gradual than initially thought, investors sent the Shanghai Composite Index (SHA:000001) 1.4% higher in a broad rally not seen since the beginning of the year. The Hang Seng Index (INDEXHANGSENG:.HSI) fell along major western indices on Thursday, boding ill for the iShares FTSE/Xinhua China 25 Index (NYSE:FXI) as well as for the PowerShares Gld Drg Haltr USX China (NYSE:PGJ).
The FED's reading on economic recovery hurt all but two components of the Dow Jones Industrial Average (INDEXDJX:.DJI) a day before, sending the rest of major world indices lower the next day. The Hang Seng Index (INDEXHANGSENG:.HSI) fell 100.8 points or 0.5% with 28 out of its 42 components ending the day in the red. Infrastructure and related stocks fell the most as government spending is expected to slow as global funds continue to dry out.
But investors went on to a buying spree in Shanghai following news that the global recovery is going to be slow. A gradual recovery diminishes chances for additional monetary tightening in China, a mantra sought after for a long time among Mainland investors. Large cap stocks lead the market higher with each and every stock among the 50 largest components of the Shanghai Composite Index (SHA:000001) ending the day higher.
Outlook for Chinese ETFs is mixed ahead the opening bell on Thursday. The Morgan Stanley China A Share Fund (NYSE:CAF), an ETF designed to track the performance of the Shanghai Composite Index (SHA:000001), is expected to advance. But this is in sharp contrast to the most liquid Chinese ETF, the iShares FTSE/Xinhua China 25 Index (NYSE:FXI). This latter has been tracking the Hang Seng Index (INDEXHANGSENG:.HSI) loosely and more precisely the Hang Seng China Enterprises Index (INDEXHANGSENG:HSCEI).
Most components of the small cap proxy Guggenheim China Small Cap ETF (NYSE:HAO) fell in Asia on Thursday, albeit the retreat was much less universal.