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8-K - THE CHINA FUND, INC. - CHINA FUND INC | b78163a1e8vk.htm |
THE CHINA FUND, INC. (CHN)
The Martin
Currie
Shanghai team
Shanghai team
IN BRIEF
Net asset value per share |
US$ | 27.17 | ||
Market price |
US$ | 25.25 | ||
Premium/(discount) |
(7.07 | %) | ||
Fund size |
US$ | 618.9m |
Source: State Street Bank and Trust Company |
At 31 October 2009 | US$ returns |
China Fund NAV | MSCI Golden Dragon* | |||||||
% | % | |||||||
One month |
5.3 | 2.3 | ||||||
Year to date |
56.2 | 58.7 | ||||||
One year |
70.7 | 67.3 | ||||||
Three years %pa |
21.5 | 9.0 |
Past performance is not a guide to future returns.
Source: State Street Bank and Trust Company. NAV performance. | ||
* | Source for index data: MSCI. |
MANAGERS COMMENTARY
The Chinese markets bounced forward in choppy trading. In the blue corner we have
the delights of easy money (loan growth in September +34% year on year, M2 +29%
year on year) and improving economic news (third-quarter GDP up 8.9%, Septembers
electric power consumption up 10.2%) In the red corner we have fears of coming
inflation and the heavy supply of new equity (though all 28 stocks on the new
ChiNext market more than doubled on the first day of trading!). After the strong
rally, it would be no surprise for markets to take umbrage at the gradual
normalization of policy, but we see the first encouraging signs of a pick-up in
private investment (in September, private investment grew faster than public for
the first time in a year). Together with robust consumption, this should help
reduce the impact, even as the outlook for exports remains grim (Septembers
exports were down only 15.2% year on year). We anticipate that inflation will
shortly turn positive, but is unlikely to run away, especially as this
development will trigger a resumption of the renminbis appreciation.
We remain positive on the implications of the cross-strait rapprochement for
Taiwan, although the market itself suffered a sharp sell-off at the month-end.
Money growth (M1B +23.5%, a five-year high) tells a story of increasing
domestic interest in the market.
INVESTMENT STRATEGY
The fund is 93% invested with holdings in 61 companies. The unlisted portion of
the fund is 15%. Additionally, 33% is invested in Hong Kong-listed companies, 20%
in Taiwan, 10% in A-shares and the balance in other markets. These last, often
orphaned stocks, in terms of broker coverage, offer particular value. Two such
stocks, China Medical Systems, a well-managed drug distribution business listed
on the UKs AIM market, and Financial One, a leasing company listed in Singapore,
have both decided to seek listings in Hong Kong (to the benefit of their share
prices).
We made almost no changes to the portfolio in October, our only action being
to buy back the now undervalued Anhui Expressway. Our performance was helped
by our cornerstone investment in drug distributor Sinopharm.
We include brief notes on the funds unlisted holdings below.
Ugent convertible bonds
This is a recent investment in a bond, convertible into Ugent equity, to provide
working capital for expansion of its printer cartridge recycling business. Since
purchase, results have been behind expectation due to funding issues and a less
than optimal sales mix. As a result the conversion rate of the bond will likely
be adjusted towards the maximum of 49% of the company. In the meantime Jackin
(the parent company) has been re-rated substantially on negotiations with China
Gold about the injection of gold mines. The new owners are likely to distribute
the Ugent shares in specie next year. A ChiNext listing now seems the most likely
exit route.
China Silicon
This investment was made almost two years ago. Delays to the furnaces, combined
with the economic environment, have meant that this investment is behind
schedule. The combination of the three smelters completing and economies
improving in 2010 underpins a significant increase in our profit expectations. In
addition there is the possibility of corporate interest.
Hand Enterprise Solutions
This companys business (enterprise resource planning software) is picking up in
line with the overall economic recovery. Revenues for 2009 have reached Rmb166
million, which is much better than expected. Net profit has reached Rmb15.9
million, around twice the budgeted level of Rmb8.6 million. The fourth quarter is
traditionally strong and so the company is confident of achieving Rmb30 million
net profit in 2009, which is close to last years. The company has a net cash
position of Rmb80 million. An IPO in the next two years remains the most likely
exit strategy.
Highlight
This investment was made two years ago. Because of postponed orders and
manufacturing issues, results have been behind expectations. Consequently, we
have exercised the put option and have negotiated the return of all of the
funds capital (along with interest) in three tranches, with the support of the
Taiwan-listed parent. The first instalment was paid on 30 September with capital
of $1.5 million and interest of $1,022,942; we returned 841,723 shares back to
the company. Now we own 2,525,170 shares and the remaining $4.5 million (plus
$0.2 million of interest) will be paid back in two tranches.
Qingdao Bright Moon
This investment in the worlds largest seaweed processor was made 18 months ago.
After last years inventory issues, performance in the first nine months of 2009
has been much better than expected, with sales reaching Rmb398.9 million, close
to the same period of last years levels, and net profit of Rmb9.2 million,
higher than forecast due to the reduction in high-priced inventory and a recovery
in demand. The performance in September was particularly impressive. An A-share
listing before the end of 2010 remains the most likely exit route. Should
operating performance deteriorate from here, we have a put option to exercise.
Queenbury (Huiyin)
This investment in Queenbury, a rural distributor of electrical appliances,
was made 18 months ago. Results have initially been below budget, largely due
to the weakness in consumption caused by the financial crisis. But 2009
forecasts now look achievable. An IPO before March 2010 remains the most
likely exit route, and this process has begun.
Chris Ruffle, Martin Currie Inc*
* | Martin Currie Ltd and Heartland Capital Management Ltd (HCML) have established MC China Ltd (MCCL), as a joint venture company, to provide investment management or investment advisory services to the range of China investment products managed by Martin Currie. | |
MCCL has appointed Martin Currie Investment Management Ltd (MCIM), or its affiliates, as investment manager of Martin Curries China investment products. HCML has seconded both Chris Ruffle and Shifeng Ke to MCIM, or its affiliates, on a full time basis with the same roles and responsibilities as if they were full time employees. |
31 OCTOBER 2009
FUND DETAILS
Market cap | US$575.24m | |||
Shares outstanding | 22,781,762 | |||
Exchange listed | NYSE | |||
Listing date | July 10, 1992 | |||
Listed and direct investment manager | Martin Currie Inc |
Source: State Street Bank and Trust Company. |
SECTOR ALLOCATION
The China | MSCI Golden | |||||||
Fund, Inc | Dragon | |||||||
Healthcare |
21.5 | % | 0.1 | % | ||||
Consumer discretionary |
18.8 | % | 5.0 | % | ||||
Consumer staples |
16.3 | % | 2.3 | % | ||||
Financials |
9.7 | % | 37.7 | % | ||||
Industrials |
9.1 | % | 7.5 | % | ||||
Information technology |
7.4 | % | 20.5 | % | ||||
Energy |
4.4 | % | 9.0 | % | ||||
Materials |
3.0 | % | 6.3 | % | ||||
Utilities |
1.9 | % | 3.7 | % | ||||
Telecommunications |
1.3 | % | 7.9 | % | ||||
Other assets & liabilities |
6.6 | % | |
Source: State Street Bank and Trust Company. Source for index data: MSCI |
ASSET ALLOCATION
Source: State Street Bank and Trust Company. |
PERFORMANCE | (US$ RETURNS) |
NAV | Market price | |||||||
% | % | |||||||
One month |
5.3 | 4.6 | ||||||
Year to date |
56.2 | 52.7 | ||||||
Three years %pa |
21.5 | 19.8 |
Past performance is not a guide to future returns.
Three year returns are annualized.
Source: State Street Bank and Trust Company |
15 LARGEST HOLDINGS (47.8%)
Queenbury Investment (Huiyan)
|
Consumer discretionary | 7.6% | ||
Sinopharm
|
Healthcare | 4.5% | ||
Shandong Weigao Group
|
Healthcare | 4.5% | ||
Wumart Stores
|
Consumer staples | 4.1% | ||
Ugent Holdings
|
Industrials | 3.7% | ||
China Medical System Holdings
|
Healthcare | 3.7% | ||
Far Eastern Department Stores
|
Consumer discretionary | 3.2% | ||
China Shineway Pharmaceutical
|
Healthcare | 2.6% | ||
Ruentex Development
|
Financials | 2.3% | ||
Fushan International Energy
|
Energy | 2.0% | ||
Ports Design
|
Consumer discretionary | 2.0% | ||
Hsu Fu Chi International
|
Consumer staples | 2.0% | ||
Chaoda Modern Agriculture
|
Consumer staples | 1.9% | ||
China Fishery Group
|
Consumer staples | 1.9% | ||
Wuxi PharmaTech Cayman
|
Healthcare | 1.8% |
DIRECT INVESTMENTS (15.0%)
Queenbury Investment (Huiyan)
|
Consumer discretionary | 7.6% | ||
Ugent Holdings
|
Industrials | 3.7% | ||
HAND Enterprise Solutions
|
Information technology | 1.3% | ||
Qingdao Bright Moon
|
Industrials | 1.1% | ||
Highlight Tech
|
Industrials | 0.7% | ||
China Silicon (Series A Preferred)
|
Information technology | 0.6% | ||
China Silicon (Common Stock)
|
Information technology | 0.0% | ||
China Silicon (Warrants)
|
Information technology | 0.0% | ||
TECO Optronics
|
Information technology | 0.0% |
Source: State Street Bank and Trust Company. |
FUND PERFORMANCE (BASED ON NET ASSET VALUE) | (US$ RETURNS) |
One | Three | Calendar | One | Three | Five | Since | ||||||||||||||||||||||
month | months | year to date | year | years | years | launch | ||||||||||||||||||||||
% | % | % | % | % pa | % pa | % pa | ||||||||||||||||||||||
The China Fund, Inc. |
5.3 | 9.5 | 56.2 | 70.7 | 21.5 | 21.6 | 11.7 | |||||||||||||||||||||
MSCI Golden Dragon |
2.3 | 4.0 | 58.7 | 67.3 | 9.0 | 13.8 | 10.3 | |||||||||||||||||||||
Hang Seng Chinese Enterprise |
7.7 | 5.3 | 61.8 | 93.2 | 19.7 | 23.3 | 22.9 | |||||||||||||||||||||
Shanghai Stock Exchange 180 |
8.8 | (13.6 | ) | 77.5 | 92.4 | 35.1 | 28.9 | n/a |
Past performance is not a guide to future returns.
Source: State Street Bank and Trust Company. Launch date 10 July 1992. Three year, five year and since launch returns are all annualized. |
Source for index data: MSCI for the MSCI Golden Dragon and Copyright 2009
Bloomberg LP for the Hang Seng China Enterprise and the Shanghai Stock Exchange
180. For a full description of each index please see the index descriptions
section.
PERFORMANCE IN PERSPECTIVE
Past performance is not a guide to future returns.
Source: Martin Currie Inc as at 31 October 2009.
THE CHINA FUND INC. PREMIUM/DISCOUNT
Past performance is not a guide to future returns.
Source: Martin Currie Inc as at 31 October 2009.
10 YEAR DIVIDEND HISTORY CHART
Total |
0.11 | 0.00 | 0.13 | 0.21 | 1.78 | 3.58 | 2.51 | 4.01 | 12.12 | 5.82 | ||||||||||||||||||||||||||||||
Income |
0.11 | 0.00 | 0.13 | 0.06 | 0.07 | 0.20 | 0.22 | 0.30 | 0.28 | 0.48 | ||||||||||||||||||||||||||||||
Long-term capital |
0.00 | 0.00 | 0.00 | 0.00 | 0.67 | 3.27 | 2.29 | 2.73 | 9.00 | 5.34 | ||||||||||||||||||||||||||||||
Short-term capital |
0.00 | 0.00 | 0.00 | 0.15 | 1.04 | 0.11 | 0.00 | 0.98 | 2.84 | 0.00 |
Past performance is not a guide to future returns.
Source: State Street Bank and Trust Company.
31 OCTOBER 2009
Sector | Company (BBG ticker) | Price | Holding | Value US$ | % of portfolio | |||||||||||||||
Hong Kong |
16.3 | % | ||||||||||||||||||
China Shineway Pharmaceutical |
2877 HK | HK$ | 10.9 | 11,184,000 | $ | 15,844,691 | 2.6 | % | ||||||||||||
Fushan International Energy |
639 HK | HK$ | 6.0 | 16,044,000 | $ | 12,462,163 | 2.0 | % | ||||||||||||
Ports Design |
589 HK | HK$ | 21.2 | 4,549,500 | $ | 12,415,332 | 2.0 | % | ||||||||||||
Chaoda Modern Agriculture |
682 HK | HK$ | 6.1 | 15,327,357 | $ | 11,984,618 | 1.9 | % | ||||||||||||
Xinao Gas |
2688 HK | HK$ | 16.7 | 5,084,000 | $ | 10,981,086 | 1.8 | % | ||||||||||||
Intime Department Store Group |
1833 HK | HK$ | 5.5 | 12,568,629 | $ | 8,886,950 | 1.5 | % | ||||||||||||
Natural Beauty Bio-Technology |
157 HK | HK$ | 1.3 | 48,680,000 | $ | 8,291,036 | 1.3 | % | ||||||||||||
Golden Meditech |
801 HK | HK$ | 1.4 | 35,040,000 | $ | 6,374,814 | 1.0 | % | ||||||||||||
Shangri-La Asia |
69 HK | HK$ | 15.1 | 3,061,555 | $ | 5,933,299 | 1.0 | % | ||||||||||||
TPV Technology |
903 HK | HK$ | 5.2 | 8,854,000 | $ | 5,803,467 | 0.9 | % | ||||||||||||
Yorkey Optical International |
2788 HK | HK$ | 1.7 | 7,758,926 | $ | 1,741,948 | 0.3 | % | ||||||||||||
FU JI Food & Catering Services |
1175 HK | HK$ | 0 | 5,462,000 | | 0.0 | % | |||||||||||||
Singapore |
5.3 | % | ||||||||||||||||||
Hsu Fu Chi International |
HFCI SP | SG$ | 1.8 | 9,484,000 | $ | 12,206,357 | 2.0 | % | ||||||||||||
China Fishery Group |
CFG SP | SG$ | 1.2 | 13,255,000 | $ | 11,562,761 | 1.9 | % | ||||||||||||
Financial One Corp |
FIN SP | SG$ | 0.6 | 12,030,000 | $ | 4,946,016 | 0.8 | % | ||||||||||||
CDW |
CDW SP | SG$ | 0.1 | 54,708,000 | $ | 2,542,648 | 0.4 | % | ||||||||||||
China Milk Products Group |
CMILK SP | SG$ | 0.5 | 4,923,000 | $ | 1,584,033 | 0.2 | % | ||||||||||||
Hong Kong H shares |
16.9 | % | ||||||||||||||||||
Sinopharm |
297 HK | HK$ | 27.8 | 7,786,000 | $ | 27,918,188 | 4.5 | % | ||||||||||||
Shandong Weigao Group |
8199 HK | HK$ | 27.6 | 7,808,000 | $ | 27,553,795 | 4.5 | % | ||||||||||||
Wumart Stores |
8277 HK | HK$ | 13.3 | 14,888,000 | $ | 25,472,066 | 4.1 | % | ||||||||||||
ZTE Corp |
763 HK | HK$ | 43.7 | 1,461,926 | $ | 8,261,973 | 1.3 | % | ||||||||||||
China Pharmaceutical Group |
1093 HK | HK$ | 4.4 | 12,918,000 | $ | 7,333,854 | 1.2 | % | ||||||||||||
Zijin Mining |
2899 HK | HK$ | 7.7 | 7,214,000 | $ | 7,139,303 | 1.2 | % | ||||||||||||
Anhui Expressway |
995 HK | HK$ | 4.9 | 1,163,300 | $ | 733,981 | 0.1 | % | ||||||||||||
Taiwan |
19.8 | % | ||||||||||||||||||
Far Eastern Department Stores |
2903 TT | NT$ | 34.1 | 19,066,931 | $ | 19,962,150 | 3.2 | % | ||||||||||||
Ruentex Development |
9945 TT | NT$ | 37.1 | 12,694,000 | $ | 14,460,926 | 2.3 | % | ||||||||||||
China Metal Products |
1532 TT | NT$ | 38.6 | 9,200,278 | $ | 10,919,372 | 1.8 | % | ||||||||||||
Uni-President Enterprises |
1216 TT | NT$ | 36.8 | 9,112,638 | $ | 10,311,013 | 1.7 | % | ||||||||||||
HTC Corp |
2498 TT | NT$ | 330.0 | 891,900 | $ | 9,049,811 | 1.5 | % | ||||||||||||
WPG Holdings |
3702 TT | NT$ | 45.5 | 6,320,000 | $ | 8,841,743 | 1.4 | % | ||||||||||||
KGI Securities |
6008 TT | NT$ | 15.3 | 16,984,780 | $ | 7,990,257 | 1.3 | % | ||||||||||||
FamilyMart |
5903 TT | NT$ | 56.0 | 4,501,652 | $ | 7,751,207 | 1.2 | % | ||||||||||||
Lien Hwa Industrial |
1229 TT | NT$ | 15.2 | 16,476,881 | $ | 7,675,330 | 1.2 | % | ||||||||||||
Taiwan Secom |
9917 TT | NT$ | 50.1 | 4,738,000 | $ | 7,298,644 | 1.2 | % | ||||||||||||
Yuanta Financial |
2885 TT | NT$ | 22.0 | 10,520,593 | $ | 7,116,596 | 1.2 | % | ||||||||||||
Fubon Financial Holdings |
2881 TT | NT$ | 36.9 | 4,948,000 | $ | 5,613,910 | 0.9 | % | ||||||||||||
Synnex Technology |
2347 TT | NT$ | 62.6 | 2,809,240 | $ | 5,407,202 | 0.9 | % | ||||||||||||
United Kingdom |
3.6 | % | ||||||||||||||||||
China Medical System Holdings |
CMSH LN | £ | 3.8 | 3,623,188 | $ | 22,694,682 | 3.6 | % | ||||||||||||
United States |
6.1 | % | ||||||||||||||||||
Wuxi PharmaTech Cayman |
WX US | US$ | 12.8 | 883,490 | $ | 11,335,177 | 1.8 | % | ||||||||||||
Far East Energy |
FEEC US | US$ | 0.5 | 14,565,477 | $ | 6,700,119 | 1.1 | % | ||||||||||||
Sina Corp |
SINA US | US$ | 37.4 | 162,700 | $ | 6,083,353 | 1.0 | % | ||||||||||||
Mindray Medical International |
MR US | US$ | 30.7 | 191,700 | $ | 5,890,941 | 1.0 | % | ||||||||||||
New Oriental Education |
EDU US | US$ | 69.8 | 73,400 | $ | 5,126,256 | 0.8 | % | ||||||||||||
The9 |
CMED US | US$ | 7.5 | 358,900 | $ | 2,691,750 | 0.4 | % | ||||||||||||
Equity linked securities (A shares) |
10.4 | % | ||||||||||||||||||
Shenzhen Agricultural |
US$ | 1.6 | 6,800,000 | $ | 10,686,778 | 1.7 | % | |||||||||||||
CITIC Securities |
US$ | 4.0 | 2,260,600 | $ | 8,949,690 | 1.5 | % | |||||||||||||
China Yangtze Power |
US$ | 1.9 | 4,169,077 | $ | 7,980,935 | 1.3 | % | |||||||||||||
Shanghai Yuyuan Tourist Board |
US$ | 2.9 | 238,502,000 | $ | 6,818,834 | 1.1 | % | |||||||||||||
Suning Appliance |
US$ | 2.4 | 2,874,013 | $ | 6,805,663 | 1.1 | % | |||||||||||||
Daqin Railway |
US$ | 1.4 | 3,807,000 | $ | 5,436,579 | 0.9 | % | |||||||||||||
Dalian Zhangzidao Fishery |
US$ | 3.9 | 1,260,565 | $ | 4,962,844 | 0.8 | % | |||||||||||||
Wuliangye Yibin |
US$ | 3.3 | 1,403,507 | $ | 4,610,521 | 0.7 | % | |||||||||||||
Zhejiang Guyuelongshan |
US$ | 1.2 | 3,658,900 | $ | 4,453,383 | 0.7 | % | |||||||||||||
Shanghai International Airport |
US$ | 2.1 | 1,816,700 | $ | 3,769,652 | 0.6 | % |
Sector | Company (BBG ticker) | Price | Holding | Value US$ | % of portfolio | |||||||||||||||
Direct |
15.0 | % | ||||||||||||||||||
Queenbury Investment (Huiyan) |
US$ | 104686 | 450 | $ | 47,108,700 | 7.6 | % | |||||||||||||
Ugent Holdings |
HK$ | 100 | 177,000,000 | $ | 22,837,973 | 3.7 | % | |||||||||||||
HAND Enterprise Solutions |
US$ | 16.4 | 500,000 | $ | 8,200,000 | 1.3 | % | |||||||||||||
Qingdao Bright Moon |
US$ | 0.2 | 31,827,172 | $ | 6,842,842 | 1.1 | % | |||||||||||||
Highlight Tech |
US$ | 1.8 | 2,525,170 | $ | 4,499,999 | 0.7 | % | |||||||||||||
China Silicon (Series A Preferred) |
US$ | 133 | 27,418 | $ | 3,646,594 | 0.6 | % | |||||||||||||
China Silicon (Common Stock) |
| 1,171,572 | | | ||||||||||||||||
China Silicon (Warrants) |
| 685,450 | | | ||||||||||||||||
teco Optronics |
| 1,861,710 | | | ||||||||||||||||
Other assets & liabilities |
$ | 40,370,383 | 6.6 | % |
INDEX DESCRIPTIONS
MSCI Golden Dragon Index
The MSCI Golden Dragon is a free float-adjusted market capitalization index
that is designed to measure equity market performance in the China region. As
of May 2005 the MSCI Golden Dragon Index consisted of the following country
indices: China, Hong Kong and Taiwan.
Hang Seng China Enterprise Index
The Hang Seng China Enterprise Index is a capitalization-weighted index
comprised of state-owned Chinese companies (H-shares) listed on the Hong Kong
Stock Exchange and included in Hans Seng Mainland China index.
Shanghai Stock Exchange 180 Index
The Shanghai Stock Exchange 180 A Share Index is a capitalization-weighted
index. The index tracks the daily price performance of the 180 most
representative A share stocks listed on the Shanghai Stock Exchange.
OBJECTIVE
The investment objective of the Fund is to achieve long term capital
appreciation. The Fund seeks to achieve its objective through investment in the
equity securities of companies and other entities with significant assets,
investments, production activities, trading or other business interests in China
or which derive a significant part of their revenue from China.
The Board of Directors of the Fund has adopted an operating policy of the Fund,
effective 30 June 2001, that the Fund will invest at least 80% of its assets in
China companies. For this purpose, China companies are (i) companies for which
the principal securities trading market is in China; (ii) companies for which the
principal securities trading market is outside of China or in companies organized
outside of China, that in both cases derive at least 50% of their revenues from
goods or services sold or produced, or have a least 50% of their assets in China; or (iii)
companies organized in China. Under the policy, China will mean the Peoples
Republic of China, including Hong Kong, and Taiwan. The Fund will provide its
stockholders with at least 60 days prior notice of any change to the policy
described above.
The Fund is subject to the Investment Company Act of 1940 which limits the means
in which it can access the A share market. The Fund will continue to seek the
most efficient way in which to increase its A share exposure ensuring ongoing
compliance with its legal and regulatory obligations.
CONTACTS
The China Fund, Inc.
c/o State Street Bank and Trust Company
2 Avenue de Lafayette
PO Box 5049
Boston, MA 02206-5049
Tel: (1) 888 CHN-CALL (246 2255)
www.chinafundinc.com
c/o State Street Bank and Trust Company
2 Avenue de Lafayette
PO Box 5049
Boston, MA 02206-5049
Tel: (1) 888 CHN-CALL (246 2255)
www.chinafundinc.com
Important information: This document is issued and approved by Martin Currie Inc (MC Inc), as
investment adviser of The China Fund Inc (the Fund). MC Inc is authorised and regulated by the
Financial Services Authority (FSA) and incorporated under limited liability in New York, USA.
Registered in Scotland (No BR2575), registered address Saltire Court, 20 Castle Terrace, Edinburgh,
EH1 2ES. Information herein is believed to be reliable but has not been verified by MC Inc. MC Inc
makes no representation or warranty and does not accept any responsibility in relation to such
information or for opinion or conclusion which the reader may draw from the newsletter.
Martin Currie Ltd and Heartland Capital Management Ltd (HCML) have established MC China Ltd (MCCL),
as a joint venture company, to provide investment management or investment advisory services to our
China product. MCCL has appointed Martin Currie Investment Management Ltd (MCIM), or its
affiliates, as investment manager of our China funds. HMCL has seconded both Chris Ruffle and
Shifeng Ke to MCIM or its affiliates on a full time basis with the same roles and responsibilities
as if they were full time employees.
The Fund is classified as a non-diversified investment company under the US Investment Company
Act of 1940 as amended. It meets the criteria of a closed ended US mutual fund and its shares are
listed on the New York Stock Exchange. MC Inc has been appointed investment adviser to the Fund.
Investors are advised that they will not generally benefit from the rules and regulations of the
United Kingdom Financial Services and Markets Act 2000 and the FSA for the protection of investors,
nor benefit from the United Kingdom Financial Services Compensation Scheme, nor have access to the
Financial Services Ombudsman in the event of a dispute. Investors will also have no rights of
cancellation under the FSAs Conduct of Business Sourcebook of the United Kingdom.
This newsletter does not constitute an offer of shares. MC Inc, its ultimate and intermediate
holding companies, subsidiaries, affiliates, clients, directors or staff may, at any time, have a
position in the market referred to herein, and may buy or sell securities, currencies, or any other
financial instruments in such markets. The information or opinion expressed in this newsletter
should not be construed to be a recommendation to buy or sell the securities, commodities,
currencies or financial instruments referred to herein.
The information provided in this report should not be considered a recommendation to purchase or
sell any particular security. There is no assurance that any securities discussed herein will
remain in an accounts portfolio at the time you receive this report or that securities sold have
not been repurchased.
It should not be assumed that any of the securities transactions or holdings discussed here were or
will prove to be profitable, or that the investment recommendations or decisions we make in the
future will be profitable or will equal the investment performance of the securities discussed
herein.
Investing in the Fund involves certain considerations in addition to the risks normally associated
with making investments in securities. The value of the shares issued by the Fund, and the income
from them, may go down as well as up and there can be no assurance that upon sale, or otherwise,
investors will receive back the amount originally invested. There can be no assurance that you will
receive comparable performance returns, or that investments will reflect the performance of the
stock examples contained in this document. Movements in foreign exchange rates may have a separate
effect, unfavorable as well as favorable, on the gain or loss otherwise experienced on an
investment. Past performance is not a guide to future returns. Accordingly, the Fund is only
suitable for investment by investors who are able and willing to withstand the total loss of their
investment. In particular, prospective investors should consider the following risks:
® | The companies quoted on Greater Chinese stock exchanges are exposed to the risks of political, social and religious instability, expropriation of assets or nationalisation, rapid rates of inflation, high interest rates, currency depreciation and fluctuations and changes in taxation, which may affect income and the value of investments. | |
® | At present, the securities market and the regulatory framework for the securities industry in China is at an early stage of development. The China Securities Regulatory Commission (CSRC) is responsible for supervising the national securities markets and producing relevant regulations. The Investment Regulations, under which the Fund invests in the Peoples Republic of China (PRC) and which regulate repatriation and currency conversion, are new. The Investment Regulations give CSRC and State Administration of Foreign Exchange (SAFE) wide discretions and there is no precedent or certainty as to how these discretions might be exercised, either now or in the future. The Fund may, from time to time, obtain access to the securities markets in China via Access Products. Such products carry additional risk and may be less liquid than the underlying securities which they represent. | |
® | During the past 15 years, the PRC government has been reforming the economic and political systems of the PRC, and these reforms are expected to continue, as evidenced by the recently announced changes. The Funds operations and financial results could be adversely affected by adjustments in the PRCs state plans, political, economic and social conditions, changes in the policies of the PRC government such as changes in laws and regulations (or the interpretation thereof), measures which may be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion and the imposition of additional import restrictions. | |
® | PRCs disclosure and regulatory standards are in many respects less stringent than standards in certain Organisation for Economic Co-operation and Development (OECD) countries, and there may be less publicly available or less reliable information about PRC companies than is regularly published by or about companies from OECD countries. | |
® | The Shanghai Stock Exchange and Shenzhen Stock Exchange have lower trading volumes than most OECD exchanges and the market capitalisations of listed companies are small compared to those on more developed exchanges in developed markets. The listed equity securities of many companies in the PRC are accordingly materially less liquid, subject to greater dealing spreads and experience materially greater volatility than those of OECD countries. These factors could negatively affect the Funds NAV. | |
® | The Fund invests primarily in securities denominated in other currencies but its NAV will be quoted in US dollars. Accordingly, a change in the value of such securities against US dollars will result in a corresponding change in the US dollar NAV. | |
® | The marketability of quoted shares may be limited due to foreign investment restrictions, wide dealing spreads, exchange controls, foreign ownership restrictions, the restricted opening of stock exchanges and a narrow range of investors. Trading volume may be lower than on more developed stockmarkets, and equities are less liquid. Volatility of prices can also be greater than in more developed stockmarkets. The infrastructure for clearing, settlement and registration on the primary and secondary markets may be underdeveloped. Under certain circumstances, there may be delays in settling transactions in some of the markets. |
Martin Currie Inc, registered in Scotland (no BR2575)
Registered office: Saltire Court, 20 Castle Terrace, Edinburgh EH11 2ES Tel: 44 (0)
131 229 5252 Fax: 44 (0) 131 228 5959 www.martincurrie.com/china
North American
office: 1350 Avenue of the Americas, Suite 3010, New York, NY 10019, USA Tel: (1)
212 258 1900 Fax: (1) 212 258 1919
Authorised and registered by the Financial Services Authority and incorporated with limited liability in New York, USA.
Please note: calls to the above numbers may be recorded.