Okay, first, the ETF is a misnomer – it’s not a fund. It’s an exchange traded security, just like a stock. But instead of the underlying value of that security being a share in a business – the value of which doesn’t change radically on a day to day basis – the underlying value is the value being the underlying value of a company, the basis is a basket of stocks. This by itself is, to someone who has rejected as so much oat bran the Efficient Markets Theories, is pretty scary.
What is worse, the underlying stocks are shares traded in Shanghai and in Hong Kong. To the extent that these are Shanghai shares, one’s queasiness at least extends no further. But shares in Shanghai? Shares that are traded and that are priced on an ongoing basis based on technical criteria or superstition? Shares for whom the opacity of their underlying companies is so great that it is impossible to get a bead on value?
Wiser people than I have unfavorably compared China’s bourses to casinos with 45 million gamblers. Amen. If you want a piece of a Casino, try Harrahs, or MGM Mirage, or even Wynn Resorts. At least you know you’re on the winning side of the gamble.