# China/Hang Seng - managed funds LIC's



## Riles (21 August 2007)

China's stock market has been going crazy lately - people were calling a bubble months ago and it still rises due to the constant influx of money from new household investors who are constrained to this one small market.

Apparently they are now going to allow some of that money to go into China's Hong Kong stock market (H shares).

Snippet:
"It's one of the ways to provide some cooling to the local market because so much liquidity has been trapped within the system with no outlet,'' said Tai Hui, an economist at Standard Chartered Bank in Hong Kong. ``In terms of the outlook for Hong Kong's market, that's going to be attractive.'' 

The Hang Seng Index surged 5.9 percent, the biggest advance since Oct. 16, 1998. The Hang Seng China Enterprises Index of mainland companies soared 8.7 percent, the biggest one-day gain in more than seven years. 

Mainland Chinese companies listed in Hong Kong, known as H shares, trade at an average of 21 times earnings. That's less than half the 50 times multiple for the benchmark CSI 300 Index of stocks listed in Shanghai and Shenzhen. The Hang Seng Index trades on a price-earnings ratio of 15. "


See full story below:

So my question is how best to get exposure to these H shares? Any Managed funds or LIC's that have specific focus on this market?


China Lets Individuals Buy Hong Kong Stocks in Trial (Update5) 

By Li Yanping and Christina Soon

Aug. 20 (Bloomberg) -- China's currency regulator said it will let individuals buy Hong Kong stocks for the first time, helping send the city's benchmark Hang Seng Index to its biggest gain in almost nine years. 

Chinese citizens with a Bank of China Ltd. account in the northern city of Tianjin will be allowed to invest foreign currencies under a pilot program, the State Administration of Foreign Exchange said today. The regulator didn't specify an investment maximum or say when the trial will start. 

Hong Kong stocks extended a rally after the announcement on speculation more of China's 17 trillion yuan ($2.2 trillion) in household savings will enter the market. China is letting more capital flow offshore to curb growth in its record $1.33 trillion foreign-exchange reserves, which have flooded the economy with cash and put pressure on the yuan to appreciate. 

``It's one of the ways to provide some cooling to the local market because so much liquidity has been trapped within the system with no outlet,'' said Tai Hui, an economist at Standard Chartered Bank in Hong Kong. ``In terms of the outlook for Hong Kong's market, that's going to be attractive.'' 

The Hang Seng Index surged 5.9 percent, the biggest advance since Oct. 16, 1998. The Hang Seng China Enterprises Index of mainland companies soared 8.7 percent, the biggest one-day gain in more than seven years. 

Mainland Chinese companies listed in Hong Kong, known as H shares, trade at an average of 21 times earnings. That's less than half the 50 times multiple for the benchmark CSI 300 Index of stocks listed in Shanghai and Shenzhen. The Hang Seng Index trades on a price-earnings ratio of 15. 

Capital Controls 

Restrictions on the renminbi, as the Chinese currency is called, mean individuals are barred from investing overseas. The government is loosening controls as record trade surpluses drive up the foreign-exchange reserves and complicate efforts to cool the world's fastest-growing major economy. 

China allowed selected banks and brokerages to start investing overseas starting last year under a so-called qualified domestic institutional investor, or QDII, program. 

Individual investors need to open a foreign-exchange account at Bank of China's branch in Tianjin's Binhai area, earmarked as a new center for financial innovation. They won't be subject to a rule that limits foreign-exchange purchases to $50,000 annually, the regulator said on its Web site. 

Enhanced Status 

The trial program is ``a clear demonstration of the mutually assisting, complementary and interactive relationship between the financial systems of the mainland and Hong Kong,'' the city's financial secretary John Tsang said in a statement on the government's Web site. ``It will help enhance the status of Hong Kong as an international financial center.'' 

Allowing Chinese investors to buy Hong Kong stocks may help cool the domestic stock market. The CSI 300 has surged 139 percent this year after more than doubling in 2006, drawing warnings of a possible bubble. Investors have opened 33 million brokerage accounts this year, six times the total for 2006. 

``The initial impact will be limited, as the domestic stock market is doing so well and people are reluctant to invest outside,'' said Wu Kan, an analyst at Shanghai Securities Consulting Co. in Shanghai. ``But when the market turns bearish one day, it will trigger capital flight.'' 

Bolstering Returns 

The changes aim to boost returns on individuals' foreign- exchange holdings, broaden channels for currency outflows and improve China's international balance of payments, the regulator said. Investors can keep returns from investments in foreign currencies or convert back to renminbi, it said. 

The transactions can only be done between Bank of China's account in Binhai and BOC International Holdings Ltd. in Hong Kong to prevent funds from going elsewhere or becoming so-called hot money within China, according to the statement. 

Bank of China's H shares jumped 10.9 percent in Hong Kong to HK$3.77, while the bank's yuan-denominated A shares rose 5.9 percent to 6.10 yuan in Shanghai. BOC International's shares aren't publicly traded. 

Investors in Hong Kong stocks are banned from short- selling, according to a separate statement on the currency regulator's Web site today giving details of the new policy. 

Hong Kong's Role 

Hong Kong Exchanges and Clearing Ltd. welcomed the decision and said it would help ``narrow the price gap between the Hong Kong-listed H shares'' and mainland-traded stocks. 

``The impact of Chinese money in the Hong Kong market could increase dramatically,'' Vincent Chan, Beijing-based head of China region research at Credit Suisse Group, wrote in a research report. While the impact of the change is difficult to assess, it will ``fundamentally change the dynamics of the Hong Kong market if this policy is adopted fully.'' 

China has used Hong Kong as a test ground for financial innovations, allowing the city's banks to offer yuan services and Chinese companies to sell yuan-denominated bonds there. Hong Kong, a former British colony that returned to Chinese sovereignty in 1997, retains its own currency, legal system and passport controls. 

``There's potential for 60 million-plus retail investors to start plowing their money into Hong Kong,'' said Andrew Clarke, a sales trader at SG Securities Hong Kong Ltd. ``It won't happen anytime soon but it will come.''


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## purple (23 August 2007)

Riles,

if you want exposure to some China H-shares, you can open a trading account in HongKong.

I'm not a citizen/resident of China nor Hongkong but i trade the China h-shares. 2 options exist for people like me/you :
- fly to Hongkong to have a short holiday, and open a trading account with a broker/bank
- open a trading account online, this one is a bit troublesome as they require all sorts of documents.

trying to get exposure to h-shares by managed funds is a bit weak; i tried AGF, which is AMP's managed fund for China A-shares. the performance is 30%, compared to the exitement of trading your own H-shares and getting 50%.

during this correction , the first index to break its year high is :
- Shanghai 1.30% up

others which are down are :
- HangSeng -5%
- south east asian markets about -9%
- Aussie Allords and DowJonesIA about -7%
- FTSE about -8%

so yes, the China/HK markets are hot right now.


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## Riles (23 August 2007)

Thanks purple
Even hotter today after the word is spreading.
HSCC red chip index up another 4.5% today!

I have a specialised China fund (Challenger China Share Fund) through Netwealth, but they are closed off now so I can't contribute any more.
Which is a problem because I'm actually tempted to cash out of this China bubble but want another entry option.

The Challenger fund is probably limited to A-shares - but has returned 45% for the previous 12 months - twice as much as the next best (Asia fund)

I was hoping someone might know of a Listed Investment Co. that specialises in the Hong Kong H shares that is accessible through our market.

Anyone know of any such beast?


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## sleeper88 (23 August 2007)

i don't know of any LICs investing in Hong Kong shares, but i came across this fund a while back: Premium China Funds, which invests in H and redchips in HKSE and A/B shares in shanghai and senzhen. So yea DYOR http://www.premiumchinafunds.com.au/


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## imaginator (27 September 2007)

Try checking out the Hong Kong Exchange and Clearing House. The stock went up to 241 today. Was only 220 early this week.

Aparently CHina is going to allow foreigners to trade via HK?


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