Bulls Invade the China Shop
Cabot’s China & Emerging Markets Report might be called the BRIC report, since it lists securities of Brazil, Russia, India and China, although China is responsible for the most impressive returns. The report was the best performer in 2006 and came in first again with an impressive 51.21% for the 12-month period ending in July of this year vs. 16.49% for the dividend reinvested Dow Jones Wilshire 5000, according to the Hulbert Financial Digest, which tracks the performance of over 180 investment newsletters with more than 500 recommended portfolios. The Cabot report is up 28.19% annualized over the past three years, also according to HFD.
The report doesn’t ignore the risk inherent here. “Chinese equities have been going up fast because a significant chunk of the world’s hot money the money deployed by aggressive growth investors who are actively sniffing out the most rewarding opportunities is chasing Chinese stocks. The thing to remember is that this is short-term money, and that it takes only a tiny piece of unsettling news to send it running for the safety of T-bills.”
What’s driving Chinese stocks on Monday, August 27, is an announcement by China’s currency regulator that individual investors on the Mainland may now buy Hong Kong stocks directly for the first time. Chinese citizens with a Bank of China account in the northern city of Tianjin may invest in foreign currencies under a pilot program and will not be subject to the rule that limits foreign exchange purchases to $50,000 annually. The combination of Fed easing and this change in Chinese policy makes for a very bullish environment for Chinese stocks listed in Hong Kong.