China - The Biggest of the BRICs
Ways to Invest in China
Some experts see China as the “new tech” and some believe there’ll be a China wreck just as there was a tech wreck. But those who are determined to invest in China need to know the different types of stocks and funds that currently exist.
A shares: companies incorporated in the People’s Republic of China (PRC) and traded in the mainland A-share markets. As of now, only mainlanders and selected foreign institutional investors are allowed to trade A shares.
B shares: companies incorporated in the PRC and traded in the mainland B-share markets (Shanghai and Shenzhen). B shares are quoted in foreign currencies. In the past, only foreigners were allowed to trade B shares, but as of March 2001, mainlanders can trade B shares, but they must trade with legal foreign currency accounts.
H shares: companies incorporated in the PRC and listed on the Hong Kong Stock Exchange and other foreign stock exchanges.
Exchange-Traded Funds and Closed-End Funds for China
EWH - iShares MSCI Hong Kong Index Fund tracks the MSCI Hong Kong Index, which consists primarily of stocks traded on the Hong Kong Stock Exchange. It offers a way to invest in Hong Kong real estate, which is where over a third of the fund’s investments are. Other investments include banks and utilities. In operation since 1996, the fund shows a gain of almost 30% gain in 2006.
FXI - iShares FTSE/Xinhua China 25 Index.Fund tracks the FTSE/Xinhua China 25 Index. (FTSE refers to a U.K. based financial firm which provides a number of indices and is pronounced foots-see.) The index consists of China’s 25 largest and most liquid companies. As a result, most of the fund’s investments are former state-owned enterprises, typically traded as “B Share” listings in Shanghai. Its portfolio encompasses a broad array of stocks in different industry groups, including financials, energy stocks and telecoms. Major holdings include PetroChina, China Mobile, Comm Bank of China, and China Life Insurance Co. Nearly half are ADRs American Depository Receipts). Founded in 2005, the fund shows a gain of over 80% in 2006. A possible drawback - shares sell higher than other China related funds, about $110 at year’s end. The average volume is 575,000 shares.
PGJ - PowerShares Golden Dragon Halter USX China Portfolio normally invests over 90% of its assets in companies that comprise the China Index, which currently consists of 38 U.S. exchange-listed stocks of companies that derive most of their revenues from the PRC. The mix includes technology, manufacturing, transportation, and insurance; all are ADRs. (Largest holdings are China Mobile, Petrochina and Huaneng Power International. In the past year, shares have increased over 50%
TFC - Taiwan Greater China Fund is a closed-end fund with investments in Taiwan Stock Exchange-traded companies that derive or anticipate revenues from business in mainland China. Tops holdings are Hon Hai Precision Ind. Co., Taiwan Semiconductor Mfg. Co., and China Steel Corp. The fund is now trading at a discount of 6.8%. The share price is up nearly 25% for the past year. A drawback is that the average volume is only 32,500.
CHN - The China Fund is a closed-end fund which invests at least 65% of its assets in China-related companies, including common stock, preferred stock, convertibles, warrants, and rights. The Fund may invest up to 25% of assets directly in unlisted securities. Currently 25% of its assets are invested in Taiwan and 39% in Hong Kong. Major holdings are Chaoda Modern Agriculture, Shanghai International Airport, and Shanghai Zhenhua Port Machinery. It currently trades at a 3.87% discount. With a track record dating back to1992, the fund gained over 60% last year. It is thinly traded with an average volume of 92,500 shares.
JFC - JF China Region Fund is a closed-end fund that invests at least 80% of its assets in common stock, preferred stock, or equity-related securities of China-region companies. The Fund may invest up to 25% of assets in non-listed securities and may also hold assets in high-quality debt obligations, including U.S. treasuries. Tops holdings include Taiwan Semiconductor Manufacturing and China Mobile Ltd. Its inception was in 1992 and its increase for last year was over 67%. It currently trades at a slight discount.
CAF - Morgan Stanley China A-Share Fund, a closed- end fund, is the first publicly traded fund in the U.S. focused on China’s A-share markets. It exists because Morgan Stanley holds QFII (Qualified Foreign Investor) status in China. With at least 80% of its assets in A-shares of Chinese companies listed on the Shanghai and Shenzhen Stock Exchanges, it offers a way to participate in China’s booming domestic markets. It may also invest up to 20% of its assets in other types of investments, including B-shares of companies listed on the Shanghai and Shenzhen Stock Exchanges. The fund made its debut in September of 2006 and its share price has increased over 50% since then. It trades at less than 1 % premium.
GCH - The Greater China Fun is a closed-end fund that invests virtually all of its assets in listed equity securities of companies which derive, or are expected to derive at least half of their revenues from goods produced or sold, investments made or services performed in China. Under normal market conditions, the fund invests at least 65% of its assets in companies listed on stock exchanges in China or Hong Kong. It may also invest in equity securities of Chinese companies listed on stock exchanges located elsewhere. Most investments are in common stock but may also include preferred stock, rights or warrants to purchase common stock or preferred stock and convertible securities. Up to 15% may be invested in unlisted equity securities of Chinese companies and up to 20% may be in debt obligations of Chinese companies that may be lower-rated or non-rated. Major holdings are Guangzhou R&F, Zijin Mining Group, and China Life Insurance. The fund has existed since 1992, now trades at a 7.28% premium and is up over 100% in one year’s time.