In a late July report to Bespoke Premium clients, we noted that even though the sizzling stock market in China was generally closed to outside investors, US investors still had plenty of (and in some cases superior) options to invest in Chinese stocks through the vast number of Chinese ADRs trading on US exchanges. There are currently over 125 Chinese ADRs that trade on US exchanges, and of those, 58 have market caps of more than $300 million. The most impressive aspect of these ADRs was that as of late July, a basket of the 58 largest Chinese ADRs was actually outperforming the Chinese stock market (Shanghai Composite).
Now that the Chinese stock market is down over 17% from its high, we updated our performance of Chinese ADRs to see how they have been holding up. The results have been surprisingly strong. As shown in the chart below, Chinese ADRs are still up nearly 80% YTD, while the Shanghai Composite is up just under 58%. Since the August 4th high, Chinese ADRs are down 8.9% compared to a decline of 17.3% for the Shanghai Composite. Based on these results, Chinese ADRs either have further to fall, or else the sell-off in Chinese stocks is overdone.