New York (HedgeCo.Net) The Chinese stock market has been all the rage for several months now and with good reason. Over the last year, the Shanghai Composite Index (SSEC) is up almost 150% over the last 12 months. This information is well known as every major financial media outlet has published something about the Chinese market in the last five months and most general media outlets have published a story or two.

What is interesting is that two of the most well known Chinese stocks, at least well known here in the United States, have not participated in the rally. Alibaba (NYSE: BABA) and Baidu (Nasdaq: BIDU) are both down over the last seven months.

The unfortunate thing is that many investors that may have been bullish on Chinese stocks likely bought BABA and BIDU thinking they would go up with the market, but that has not been the case. The other possibility for investors was to buy an ETF that represented the Chinese market such as the iShares China Large-Cap ETF (NYSE: FXI) or the iShares MSCI China fund (NYSE: MCHI). These are the two biggest China ETFs in terms of assets, but they haven’t kept pace with the SSEC either. The FXI is up 21.44% and the MCHI is up 19.45% since last November 10. While those are respectable returns, they are a far cry from the 100% gain by the SSEC.

To get an idea whether or not the models on the HedgeCoVest platform have been trading BABA, BIDU, FXI or MCHI, we sorted the positions from the last couple of years to look at any trends. There were several items that jumped out from the data. First, several of the models owned BIDU from late 2013 through mid-2014, but none of the models have traded it since July of last year. Since BABA went public last September, our models have made just a few trades on the stock with one long bet, one short bet, and one short-term long bet in early November 2014. None of the models have traded the MCHI and only one model has traded the FXI during the last seven months and that was a short-term bullish trade last December.

So what does all of this mean? First, while the headlines might be screaming about how well the Chinese market is doing, the participation by different stocks and different investors is far from equal or widespread. Secondly, if the professional investment managers that manage the platforms on the HedgeCoVest platform are hesitant to trade or participate in a roaring bull market like the one China has gone through in the last year, what chance does an individual investor have of making money? The barriers to trading in China are high and the methods and tools which U.S. investors can use with ease are not behaving like the overall market. Is this a reflection of distrust from the managers on our platform? Could it be a sign that the rally is getting ready to come to an end?

Rick Pendergraft
Research Analyst
HedgeCoVest