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AlphaShares Monthly Letter: October 2009

The AlphaShares China All-Cap Index gained +5.52% in October. The Chinese economy continued its solid pace of recovery with GDP rising 8.9% in Q3 from a year earlier, the fastest pace in a year. The central bank said that growth is likely to top the government’s 8% target for 2009. Its $586 billion stimulus package and record growth in new loans have countered an 11-month slump in net exports. There has been increasing evidence that China’s growth has broadened from public investment to domestic consumption, private investment, and a recovery in exports in recent months—as the September trade report showed a solid 7.7% monthly gain in activity. Gains in the Financial and Energy sectors led markets higher as they gained 9.71% and 9.55% in October. China National Offshore Oil Corp (883 HK) gained 15.35% in October. China’s top offshore oil and gas producer, rallied after releasing a production report announcing it produced 18.4% more oil and gas in the third quarter. CNOOC is almost 3.8% of the HSI benchmark, and over 4% of FXI assets.

The Bank of China (3988 HK), held in both HSI and FXI at a weight over 6%, gained 12.25% on the month. China’s third-largest lender said that Q3 profits rose 19% to 21.1 billion CNY (or $3.09 billion USD); beating estimates for 20.52 billion yuan, while bucking the downward trend in the first half of this year. At the end of last month, non-performing loans outstanding totaled 75.3 billion yuan, down 2.18 billion yuan from the end of June. The bank's bad loans ratio was 1.6%, down from 1.8% the previous quarter.

On the whole, Chinese lenders issued a record 8.67 trillion yuan ($1.7 trillion USD) of new loans in the first nine months—far ahead of this year's target of 5 trillion yuan under the government's relatively loose monetary policies. Central bank governor Zhou Xiaochuan said that China would stick to an appropriately loose monetary policy, reaffirming Beijing’s commitment to easier rates as speculation mounts about an eventual policy shift.

Past performance is no guarantee of future results. The information presented in this letter is for background purposes only and is subject to updating, revision and amendment, and no representation or warranty, expressed or implied, is made, and no liability is accepted by AlphaShares, LLC in relation thereto. This letter is neither an offer to sell nor a solicitation of any offer to buy interests in the Fund. Any such offering is made only pursuant to the Fund’s Private Placement Memorandum and subscription agreement, which should be read in their entirety. No offer to purchase shares in the Fund will be accepted prior to receipt by the offeree of the aforementioned documents and completion of all appropriate documents. These materials have been sent to you in a confidential manner. The information contained herein may be proprietary. No part of these materials may be reproduced in any manner without the Investment Manager’s prior consent.