Tarl, What you do not understand is that the etf is the best representation of where people believe that the market will open up in China,etc. People make a market at the opening bell in Hong Kong based off of US market performance, and they WILL price shares lower. Foreign markets are typically much more Gapy than US markets. In fact the HSI did gap down ~2%.
If you buy or sell, you are making a forecast yourself. You are predicting that China will open higher or lower (respectively) than the current ask or bid. The market price is discovered through the buying and selling pressures of many market participants. The only way you can make money is by having a better forecast than everyone else. There is no arbitrage opportunity, it's a purely speculative trade. Basically you're saying that today's closing prices from China are the best possible forecast of tomorrow's open in China; that no possible information available to US market participants could change that. Implicit in this logic is the assumption that NYSE traders don't know jack shit about China. In fact, evidence from closed-end country funds shows that NYSE investors are typically <i>better</i> at forecasting long term prices in developing countries than their own domestic investors. That is, CEF discounts and premia tend to predict the performance of the overseas market. Martin
Let's take a specific example. PetroChina is traded both in Hong Kong and the NYSE. By your logic, once Hong Kong closes, the price of PTR should remain constant until Hong Kong opens again, after the NYSE close. Since PTR isn't trading on its primary exchange, nobody in New York can possibly know what it is worth. But let's say it's noon in New York, the middle of the night in China. PTR is trading at 150. Suddenly news hits the wires that a supertanker is burning in the Straits of Hormuz after a terrorist attack. Oil spikes up six or seven bucks. Would you sell your shares of PTR at 150.01 or would you wait for a better price? Martin