TOKYO -- The effects of China's market plunge are spreading to the investment trust markets of Japan and the U.S. On Wednesday, major exchange-traded funds comprised of Chinese stocks ran into massive selling in the U.S. And in Tokyo on Thursday, sales of investment trusts made up of Chinese shares were temporarily halted amid the turmoil.
On Wednesday in the U.S., the iShares China Large-Cap ETF tumbled 7.2%, its steepest slide in four years. Turnover totaled 100.5 million units, or nearly 60% of the total. It is possible that more than half of investors in the ETF unloaded their holdings. The instrument, which was set up and is managed by U.S. investment company BlackRock, is linked to an index tracking large- and medium-cap Chinese stocks listed on the Hong Kong Stock Exchange. As of Wednesday, the ETF's total net assets were worth some $6.9 billion.
The sell-off appears to have been spurred by investors who were concerned about the liquidity of Chinese shares. Trading of Chinese stocks can be suspended upon the request of the issuing company, and investment in the Shanghai stock market by foreigners is restricted. The current market decline has made investors more alert to these drawbacks inherent to the Hong Kong and Shanghai markets.
As of Tuesday, the iShares China Large-Cap ETF was comprised of 51 stocks. Of these, four issues -- Great Wall Motor, Haitong Securities, Air China and Hanergy Thin Film Power Group -- were not traded on the Hong Kong exchange on Wednesday. That makes it impossible for investors to know the exact worth of the ETF.
Also on Wednesday, Japan's Daiwa Asset Management suspended sales to new customers of investment trusts made up of Chinese stocks. It also stopped handling the sale of such funds by existing investors. The following day, Japanese companies Nomura Asset Management, Sumitomo Mitsui Trust Asset Management and Sumitomo Mitsui Asset Management followed suit, as the suspension of trading in Chinese shares has made it impossible to work out the prices of their investment trusts.