| What Did These Two Investors Do Differently? The following chart shows the investment growth of two investors over the past 52 years. They both invested in the exact same stocks over the same period. But one turned $10,000 into $438,967. The other, just $22,659. So what did they do differently? Find out here. (Hint: It's not reinvesting dividends.) | | Buying China for 80 Cents on the Dollar
China is one of my favorite destinations... and one of my favorite times to visit China is the week before Christmas. I take my shopping list and buy anything and everything at prices 50% to 90% below U.S. prices. Right now, it's also possible to buy Chinese stocks at a big discount. First, a little background... My first trip to China was in 1994. There were a half-dozen cars on the streets of Cheng Du. Everyone else rode bicycles. Modern hotels were not particularly common, though mine, the Jin Jiang, was quite amenable. There were no McDonald's restaurants, and rice was about all I could recognize or eat. I didn't care; I wasn't there for gastronomic delights. My goal was to research a certain Chinese steel company. Turns out it was a fraud. So as I found out early, almost nothing in China is what it seems on the surface. Today, China is more modern, more prosperous and more accessible... and there are certainly more cars than bicycles in cities like Beijing and Cheng Du. But what hasn't changed is that nothing is transparent. The economic numbers coming out of the government are always suspect. And many Chinese companies produce financial reports that stretch the truth. That's a big part of the reason why the Chinese stock market is a speculator's market. That said, there's no denying China's breakneck economic growth. Even though that growth has been slowing somewhat recently, the Chinese stock market has been on fire. The Shanghai Stock Exchange A Share Index (SHASHR) has soared 42% so far this year. It's probably about time for a correction. But the pullback, if there is one, will likely be a temporary stop. For one thing, China is looking to stimulate its economy. Additionally, China has recently allowed more foreign investment into its A shares as it tries to open up its markets to foreign capital. The A shares used to be open only to Chinese investors, while foreign investors could only buy B shares. But this bifurcated structure is finally changing. A few months ago, Chinese regulators finally opened up the A share market to foreign investors. This regulatory change is likely to produce much greater demand for A shares. Net-net, the new foreign demand for A shares, coupled with the government's efforts to simulate the economy, could easily send the Chinese stock market even higher. But remember, this is a speculator's market. That being said, if you want to invest in the Chinese A shares, then do it the right way - the Chinese way. Do it at a 20% discount. That's right. You can buy the big players in the market for $0.80 on the dollar simply by investing in a certain closed-end fund. Unlike regular mutual funds that always change hands at their exact net asset values (NAV), closed-end funds can trade above or below their NAVs, depending on investor demand for them. Closed-end funds issue limited amounts of shares and trade on the New York Stock Exchange or Nasdaq. Their prices, after the initial issue, are set by whatever investors are willing to pay. So they can trade at a discount or a premium to their net asset values. I recall buying an Indonesian closed-end fund at a 40% discount during the worst of the Asian Financial Crisis back in 1997. A similar opportunity exists right now in China - not at a 40% discount, but at 20%. The fund is the Morgan Stanley China A Shares Fund (NYSE: CAF), and it is currently trading 20% below its net asset value. The average discount during the last five years has been only 5%.
There are many reasons why a closed-end fund may trade at a deep discount. But whatever the reason, these deep discounts don't usually last very long, as closed-end funds tend to move toward their average discounts over time. So if you're looking to place a bet on the Chinese market, then the China A Shares Fund might be the best bet out there. You get exposure to the Chinese market at $0.80 on the dollar. But if you decide that you want the ultimate Chinese discount, then take a trip to Shanghai and stop by the Fabric Market. Give yourself at least three days. The first day to get measured. The second day to try on your new duds and get them altered to fit perfectly. Then on the third day, celebrate your savvy investments by stopping in for a nice cold one at The Long Bar in the Waldorf Astoria on the Bund. All the best, Karim Rahemtulla For The Non-Dollar Report
|
| | |
| RECENT ARTICLES | The Chinese are buying gold in every way imaginable, which is one very big reason why a new bull market in gold is likely to begin soon. Now comes a brand-new Chinese gold venture with the Shanghai Gold Exchange... and it's a biggie. Read On... | |
| | U.S. stocks have been the World Champion of investments during the last few years. Silver hasn't even made it out of the ring. But whenever investor sentiment becomes extreme, a reversal of fortunes is usually very near. Read On... | |
| | Fear is in a bear market… and that can be a very scary thing. When investors lack fear, they also lack caution. Read On... | |
| |
|
|
No comments:
Post a Comment
Keep a civil tongue.