Attached files
| file | filename |
|---|---|
| 8-K - CHINA FUND INC | v235422_8k.htm |
|
THE CHINA FUND, INC. (CHN)
MONTHLY INSIGHT
|
 |
AT AUGUST 31, 2011
|
IN BRIEF
|
|
|
Net asset value per share
|
US$30.85
|
|
Market price
|
US$28.17
|
|
Premium/(discount)
|
(8.69%)
|
|
Fund size
|
US$702.8m
|
|
Source: State Street Bank and Trust Company.
|
|
|
At August 31, 2011
|
US$ return
|
|||||||
|
China Fund
NAV
|
MSCI Golden
Dragon*
|
|||||||
|
%
|
%
|
|||||||
|
One month
|
(8.8 | ) | (8.5 | ) | ||||
|
Year to date
|
(12.6 | ) | (8.7 | ) | ||||
|
One year
|
4.9 | 7.3 | ||||||
|
Three years % pa
|
12.2 | 5.2 | ||||||
Past performance is not a guide to future returns.
Source: State Street Bank and Trust Company.
NAV performance. *Source for index data: MSCI.
FUND MANAGER
Shifeng Ke
MANAGER’S COMMENTARY
As global equities slid in August, Chinese stockmarkets plummeted too. The Hong Kong and Taiwanese markets were particularly hard hit, but the domestic A-share markets held up relatively well. Investors were concerned about the European banking system, the economic slowdown in the US, and China’s rising inflation and continued tightening policies. The Fund was down 8.8% for the month. The main negatives were Huiyin Household Appliances (despite good first-half results and solid business) and Boshiwa International Holding (on disappointing first-half results).
Economic growth in China continues to moderate from a high level. Industrial production grew 14% (year on year) in July, which was weaker than expected. Meanwhile, retail sales showed steady growth of 17.2%, while fixed-asset investment grew at 25.4%. Our recent company visits in the Greater China region show that Chinese exporters are feeling the squeeze from the rising costs of labor and material, the yuan’s recent strength and destocking as customers worry about a slide into recession. As liquidity deteriorates, property transactions in first-tier cities are shrinking rapidly. Inflation remains challenging. The CPI reached a new cycle-high at 6.5% in July, mainly driven by food prices (up 14.8% in July and contributing 4.4% CPI growth). Inflation might retreat in August, thanks to stabilizing food prices and a favorable base effect, which would boost sentiment. The central bank’s continued vigilance is illustrated by its move to freeze some Rmb900 billion of liquidity in the banking system by broadening the base for the reserve-requirement ratio. Bank stocks, to which the Fund has little exposure, declined on fears that the continued tightening would hurt the banks’ profits. The positive news is that earnings growth for Chinese companies has held up better than expected. For MSCI China constituents, earnings growth reached 23% in the first half of 2011, while our A-share portfolio achieved earnings growth of 32.9%. Foreign direct investment continued to pour into China in July, rising 19.8% from the same month a year earlier. With next year’s political handover approaching, it seems as though the government would need evidence of a widespread slowdown or a major foreign shock to start loosening policy.
Taiwan looks more encouraging. Its second-quarter real GDP rose by 5% year-on-year, driven by solid gains in private consumption (+4.1% quarter on quarter) and by newly launched infrastructure projects ahead of next year’s presidential election. The unemployment rate stood at just 4.4% in June, and inflation dropped to 1.3% in July from 1.9% in June. Even export orders enjoyed a recovery in July, rising 11.1% year-on-year, compared with year-on-year growth of 9.2% in June, though clearly the outlook for Western demand is weakening.
Source: Martin Currie Investment Management.
INVESTMENT STRATEGY
The Fund is 94.2% invested with holdings in 58 companies.
During the month, we took advantage of the sharp market correction to add stocks we have been watching for a while. We made a new investment into Ajisen China Holdings Limited. This company operates a chain of restaurants (597 so far) that offers Japanese ramen and Japanese-style dishes on the Chinese mainland and in Hong Kong. Its share price collapsed in late July, when the nutritional content of the company’s soup base was found to be lower than it had disclosed. Our recent company visit showed the company’s business to still be solid, with sales recovering nicely and average selling price rising after the company’s apologies for its inappropriate description.
We also managed to increase the Fund’s exposure to the A-share market by increasing holdings of home-appliance distributor Suning Appliance, Ping An Insurance and Qinghai Salt Lake Potash, using newly available QFI quota. We added to Vanceinfo Technologies (VIT US), the leading provider of IT outsourcing services, as the company announced better-than-expected second-quarter results. On the sell side, we took quick profits from our tiny allocation in Sun Art Retail Group after its successful IPO. We are now cautious about selling stocks, as we feel that Chinese markets are remarkably cheap.
Shifeng Ke, Martin Currie Inc*
MONTHLY INSIGHT
|
FUND DETAILS
|
|
|
Market cap
|
US$641.8m
|
|
Shares outstanding
|
22,781,762
|
|
Exchange listed
|
NYSE
|
|
Listing date
|
July 10, 1992
|
|
Listing and direct investment manager
|
Martin Currie Inc
|
|
Source: State Street Bank and Trust Company.
|
ASSET ALLOCATION
Source: State Street Bank and Trust Company
|
INDUSTRY ALLOCATION
|
||||||||
|
The China Fund, Inc %
|
MSCI Golden Dragon %
|
|||||||
|
Healthcare
|
22.3 | 0.4 | ||||||
|
Consumer discretionary
|
19.2 | 7.0 | ||||||
|
Consumer staples
|
14.3 | 3.3 | ||||||
|
Financials
|
13.6 | 34.9 | ||||||
|
Information technology
|
9.1 | 18.7 | ||||||
|
Industrials
|
5.8 | 6.7 | ||||||
|
Utilities
|
3.4 | 4.2 | ||||||
|
Telecommunications
|
3.3 | 8.1 | ||||||
|
Materials
|
2.7 | 7.7 | ||||||
|
Energy
|
0.5 | 9.1 | ||||||
|
Other assets & liabilities
|
5.8 | — | ||||||
Source: State Street Bank and Trust Company. Source for index data: MSCI
|
PERFORMANCE
|
(US$ RETURNS)
|
|||||||
|
NAV %
|
Market price %
|
|||||||
|
One month
|
(8.8 | ) | (6.2 | ) | ||||
|
Year to date
|
(12.6 | ) | (13.3 | ) | ||||
|
Three years % pa
|
12.2 | 13.1 | ||||||
|
Past performance is not a guide to future returns.
|
||||||||
|
Three year returns are annualized.
|
||||||||
|
Source: State Street Bank and Trust Company
|
||||||||
|
15 LARGEST HOLDINGS (49.6%)
|
Fund %
|
||||
|
China Medical System Holdings
|
Healthcare
|
9.4 | |||
|
Hand Enterprise Solutions
|
Information technology
|
4.9 | |||
|
Ping An Insurance
|
Financials
|
3.5 | |||
|
Wumart Stores
|
Consumer staples
|
3.5 | |||
|
FamilyMart
|
Consumer discretionary
|
3.4 | |||
|
Shandong Weigao Group
|
Healthcare
|
3.3 | |||
|
Far Eastern Department Stores
|
Consumer discretionary
|
3.2 | |||
|
Huiyin Household Appliances
|
Consumer discretionary
|
2.8 | |||
|
ENN Energy
|
Utilities
|
2.5 | |||
|
China Mobile
|
Telecommunications
|
2.4 | |||
|
Uni-President Enterprises Corp.
|
Consumer staples
|
2.2 | |||
|
Zong Su Foods
|
Consumer staples
|
2.2 | |||
|
China Bright
|
Healthcare
|
2.1 | |||
|
Wuliangye Yibin
|
Consumer staples
|
2.1 | |||
|
Sinopharm Group
|
Healthcare
|
2.1 | |||
*Martin Currie Ltd and Heartland Capital Management Ltd (‘HCML’) have established MC China Ltd (‘MCCL’), as a joint venture company, to provide investment consultancy services to the range of China investment products managed by Marin Currie and its affiliates. HCML has seconded Shifeng Ke to Martin Currie Inc. and its affiliates, on a full time basis. Chris Ruffle ceased to perform client management funtions for Martin Currie from July 29, 2011. Shifeng Ke, the co-manager of the Fund, took lead management responsibility on July 29, 2011.
|
DIRECT INVESTMENTS (5.5%)
|
|||||
|
Fund %
|
|||||
|
Zong Su Foods
|
Consumer staples
|
2.2 | |||
|
China Bright
|
Healthcare
|
2.1 | |||
|
Qingdao Bright Moon
|
Industrials
|
1.2 | |||
|
China Silicon
|
Information technology
|
0.0 | |||
|
Hand Enterprise Solutions (preferred)
|
Information technology
|
0.0 | |||
|
Source: State Street Bank and Trust Company.
|
|||||
|
FUND PERFORMANCE (BASED ON NET ASSET VALUE)
|
(US$ returns)
|
|||||||||||||||||||||||||||
|
One month
|
Three months
|
Calendar year
|
One year
|
Three years
|
Five years
|
Since launch
|
||||||||||||||||||||||
|
%
|
%
|
to date %
|
%
|
% pa
|
% pa
|
% pa
|
||||||||||||||||||||||
|
The China Fund, Inc.
|
(8.8 | ) | (9.7 | ) | (12.6 | ) | 4.9 | 12.2 | 18.5 | 11.7 | ||||||||||||||||||
|
MSCI Golden Dragon
|
(8.5 | ) | (11.7 | ) | (8.7 | ) | 7.3 | 5.2 | 8.5 | n/a | ||||||||||||||||||
|
Hang Seng Chinese Enterprise
|
(11.5 | ) | (17.7 | ) | (14.0 | ) | (4.1 | ) | (2.0 | ) | 9.7 | n/a | ||||||||||||||||
|
Shanghai Stock Exchange 180
|
(3.4 | ) | (5.4 | ) | (5.9 | ) | 3.4 | 5.3 | 19.4 | n/a | ||||||||||||||||||
Past performance is not a guide to future returns. Source: State Street Bank and Trust Company. Launch date July 10, 1992. Three, five year and since launch returns are all annualized. Source for index data: MSCI for the MSCI Golden Dragon and Copyright 2011 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 August 31, 2011.
MONTHLY INSIGHT
THE CHINA FUND INC. PREMIUM/DISCOUNT
Past performance is not a guide to future returns.
Source: Martin Currie Inc as at August 31, 2011.
10 YEAR DIVIDEND HISTORY CHART
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
||||||||||||||||||||||||||||||||||
|
Total
|
0.00 | 0.13 | 0.21 | 1.78 | 3.58 | 2.51 | 4.01 | 12.12 | 5.82 | 0.26 | 2.27 | |||||||||||||||||||||||||||||||||
|
Income
|
0.00 | 0.13 | 0.06 | 0.07 | 0.20 | 0.22 | 0.30 | 0.28 | 0.48 | 0.26 | 0.37 | |||||||||||||||||||||||||||||||||
|
Long-term capital
|
0.00 | 0.00 | 0.00 | 0.67 | 3.27 | 2.29 | 2.73 | 9.00 | 5.34 | 0.00 | 1.90 | |||||||||||||||||||||||||||||||||
|
Short-term capital
|
0.00 | 0.00 | 0.15 | 1.04 | 0.11 | 0.00 | 0.98 | 2.84 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||||||||||||||
Past performance is not a guide to future returns.
Source: State Street Bank and Trust Company.
|
Sector
|
Company (BBG ticker)
|
Price
|
Holding
|
Value US$
|
% of portfolio
|
||||
|
HONG KONG H
|
21.6
|
||||||||
|
China Medical System Holdings
|
867
|
HK
|
HK$7.3
|
72,353,760
|
$66,333,145
|
9.4
|
|||
|
Wumart Stores
|
1025
|
HK
|
HK$19.5
|
9,810,750
|
$24,589,703
|
3.5
|
|||
|
Shandong Weigao Group Medical Polymer
|
1066
|
HK
|
HK$9.8
|
18,352,000
|
$23,022,328
|
3.3
|
|||
|
Sinopharm Group
|
1099
|
HK
|
HK$18.8
|
6,056,800
|
$14,683,057
|
2.1
|
|||
|
Boshiwa International Holding
|
1698
|
HK
|
HK$2.0
|
24,932,000
|
$6,434,643
|
0.9
|
|||
|
ZTE Corp.
|
763
|
HK
|
HK$21.6
|
2,250,826
|
$6,213,720
|
0.9
|
|||
|
Fook Woo
|
923
|
HK
|
HK$1.8
|
25,314,000
|
$5,915,663
|
0.8
|
|||
|
Asian Citrus Holdings
|
73
|
HK
|
HK$5.7
|
6,677,000
|
$4,843,966
|
0.7
|
|||
|
TAIWAN
|
19.9
|
||||||||
|
FamilyMart
|
5903
|
TT
|
NT$153.0
|
4,501,652
|
$23,742,318
|
3.4
|
|||
|
Far Eastern Department Stores
|
2903
|
TT
|
NT$53.9
|
11,922,460
|
$22,152,074
|
3.2
|
|||
|
Uni-President Enterprises Corp.
|
1216
|
TT
|
NT$42.8
|
10,625,335
|
$15,658,080
|
2.2
|
|||
|
Ruentex Development Co
|
9945
|
TT
|
NT$33.2
|
12,694,000
|
$14,527,682
|
2.1
|
|||
|
Chinatrust Financial
|
2891
|
TT
|
NT$23.7
|
17,527,288
|
$14,319,334
|
2.0
|
|||
|
Yuanta Financial Holdings
|
2885
|
TT
|
NT$17.0
|
19,305,684
|
$11,313,419
|
1.6
|
|||
|
China Metal Products
|
1532
|
TT
|
NT$23.9
|
12,420,374
|
$10,232,749
|
1.5
|
|||
|
Fubon Financial Holdings
|
2881
|
TT
|
NT$41.3
|
5,454,608
|
$7,765,570
|
1.1
|
|||
|
KGI Securities
|
6008
|
TT
|
NT$13.0
|
17,321,078
|
$7,762,079
|
1.1
|
|||
|
Test-Rite International
|
2908
|
TT
|
NT$23.0
|
8,457,000
|
$6,705,079
|
0.9
|
|||
|
Taiwan Life 4percent Conv Bond*
|
n/a
|
NT$82.7
|
200,000,000
|
$5,702,132
|
0.8
|
||||
|
HONG KONG
|
17.8
|
||||||||
|
Huiyin Household Appliances
|
1280
|
HK
|
HK$1.0
|
160,413,750
|
$19,979,499
|
2.8
|
|||
|
ENN Energy
|
2688
|
HK
|
HK$26.8
|
5,084,000
|
$17,462,266
|
2.5
|
|||
|
China Mobile
|
941
|
HK
|
HK$79.0
|
1,636,500
|
$16,621,253
|
2.4
|
|||
|
Chaoda Modern Agriculture (Holdings)
|
682
|
HK
|
HK$2.5
|
26,651,357
|
$8,657,871
|
1.2
|
|||
|
Natural Beauty Bio-Technology
|
157
|
HK
|
HK$1.4
|
47,710,000
|
$8,208,910
|
1.2
|
|||
|
Ajisen China Holdings
|
538
|
HK
|
HK$11.7
|
5,400,000
|
$8,140,164
|
1.1
|
|||
|
Shangri-La Asia
|
69
|
HK
|
HK$17.9
|
3,316,683
|
$7,657,111
|
1.1
|
|||
|
Ports Design
|
589
|
HK
|
HK$12.8
|
4,549,500
|
$7,500,668
|
1.1
|
|||
|
Tencent Holdings
|
700
|
HK
|
HK$185.0
|
291,000
|
$6,912,513
|
1.0
|
|||
|
China Innovationpay Group
|
8083
|
HK
|
HK$0.4
|
146,000,000
|
$6,748,801
|
1.0
|
|||
|
China Water Affairs
|
855
|
HK
|
HK$2.6
|
19,976,000
|
$6,694,533
|
0.9
|
|||
|
Golden Meditech Co
|
801
|
HK
|
HK$1.2
|
35,040,000
|
$5,534,017
|
0.8
|
|||
|
China Shineway Pharmaceutical Group
|
2877
|
HK
|
HK$11.1
|
3,041,000
|
$4,349,836
|
0.6
|
|||
|
Yorkey Optical International Cayman
|
2788
|
HK
|
HK$0.9
|
4,850,926
|
$541,895
|
0.1
|
|||
|
FUJI Food & Catering Services
|
1175
|
HK
|
HK$0.0
|
5,462,000
|
$0
|
0.0
|
|||
|
EQUITY LINKED SECURITIES (‘A’ SHARES)
|
|
14.3
|
|||||||
|
Ping An Insurance
|
n/a
|
US$6.4
|
3,870,559
|
$24,716,670
|
3.5
|
||||
|
Wuliangye Yibin
|
n/a
|
US$6.3
|
2,334,507
|
$14,775,609
|
2.1
|
||||
|
Shanghai Qiangsheng
|
n/a
|
US$1.0
|
10,482,652
|
$9,959,683
|
1.4
|
||||
|
Zhejiang China Commodities City Group
|
n/a
|
US$1.7
|
5,543,940
|
$9,651,999
|
1.4
|
||||
|
Suning Appliance
|
n/a
|
US$1.9
|
4,607,872
|
$8,547,603
|
1.2
|
||||
|
Tangshan Jidong Cement
|
n/a
|
US$3.0
|
2,837,087
|
$8,536,151
|
1.2
|
||||
|
Jiangsu Yuyue Medical Equipment
|
n/a
|
US$4.3
|
1,936,000
|
$8,359,325
|
1.2
|
||||
|
Shanghai Yuyuan Tourist
|
n/a
|
US$1.8
|
429,303,600
|
$7,868,298
|
1.1
|
||||
|
China Railway Construction Group
|
n/a
|
US$0.7
|
6,582,600
|
$4,887,352
|
0.7
|
||||
|
Qinghai Salt Lake Potash
|
n/a
|
US$8.2
|
390,550
|
$3,206,720
|
0.5
|
||||
|
USA
|
5.7
|
||||||||
|
WuXi PharmaTech Cayman
|
WX
|
US
|
US$13.7
|
883,490
|
$12,112,648
|
1.7
|
|||
|
Mindray Medical International
|
MR
|
US
|
US$26.1
|
291,700
|
$7,598,785
|
1.1
|
|||
|
VanceInfo Technologies
|
VIT
|
US
|
US$13.6
|
474,800
|
$6,466,776
|
0.9
|
|||
|
Hollysys Automation Technologies
|
HOLI
|
US
|
US$5.7
|
925,700
|
$5,285,747
|
0.8
|
|||
|
China New Borun Corp.
|
BORN
|
US
|
US$4.3
|
1,202,859
|
$5,196,351
|
0.7
|
|||
|
Far East Energy
|
FEEC
|
US
|
US$0.2
|
16,392,823
|
$3,606,421
|
0.5
|
|||
*This is an unlisted convertible bond. Shares in Taiwan Life are listed on the Taiwan Stock Exchange.
MONTHLY INSIGHT
|
Sector
|
Company (BBG ticker)
|
Price
|
Holding
|
Value US$
|
% of portfolio
|
||||
|
DIRECT
|
5.5
|
||||||||
|
Zong Su Foods
|
n/a
|
US$5,603.0
|
2,677
|
$15,000,034
|
2.2
|
||||
|
China Bright
|
n/a
|
HK$7.9
|
14,665,617
|
$14,951,753
|
2.1
|
||||
|
Qingdao Bright Moon
|
n/a
|
US$0.3
|
31,827,172
|
$8,561,509
|
1.2
|
||||
|
China Silicon Corp.
|
n/a
|
US$0.0
|
2,329,281
|
$0
|
0.0
|
||||
|
Hand Enterprise Solutions (preferred)
|
n/a
|
US$0.0
|
500,000
|
$0
|
0.0
|
||||
|
CHINA ‘A’ SHARE
|
4.9
|
||||||||
|
Hand Enterprise Solutions
|
300170
|
CH
|
Rmb19.4
|
11,238,137
|
$34,111,557
|
4.9
|
|||
|
SINGAPORE
|
4.5
|
||||||||
|
China Fishery Group
|
CFG
|
SP
|
SG$1.3
|
13,594,872
|
$14,348,448
|
2.0
|
|||
|
Hsu Fu Chi International
|
HFCI
|
SP
|
SG$4.2
|
4,901,084
|
$14,143,530
|
2.0
|
|||
|
CDW Holding
|
CDW
|
SP
|
SG$0.1
|
48,208,000
|
$3,285,179
|
0.5
|
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OTHER ASSETS & LIABILITIES
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$40,720,993
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5.8
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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 Fund has an operating policy 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 People’s 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 this policy.
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
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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 consultancy services to the range of China investment products managed by Marin Currie and its affiliates. HCML has seconded Shifeng Ke to Martin Currie Inc. and its affiliates, on a full time basis. Effective 29 July, 2011, Chris Ruffle ceased performing client portfolio management functions for Martin Currie.
Heartland Capital Investment Consulting (Shanghai) Ltd (‘HCIC’) is a wholly owned subsidiary of MC China Ltd. Research is undertaken by HCIC for MC China Ltd and provided to MC Inc (the investment manager of The China Fund, Inc.) and Martin Currie Investment Management Ltd., an affiliate of the investment manager. HCIC may change its opinions and views without prior notice. Any information provided within does not constitute investment advice nor is it an invitation to invest in this company.
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 FSA's 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 account's 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:
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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.
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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 People's 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.
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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 Fund's operations and financial results could be adversely affected by adjustments in the PRC's 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.
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PRC's 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.
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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 Fund's NAV.
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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.
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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.
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Martin Currie Inc registered in Scotland (no BR2575)
Registered office: Saltire Court, 20 Castle Terrace, Edinburgh EH1 2ES
Tel: 44 (0) 131 229 5252 Fax: 44 (0) 131 228 5959 www.martincurrie.com
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 regulated by the Financial Services Authority and incorporated with
limited liability in New York, USA. Registered with the SEC as an investment adviser.
Please note: calls to the above numbers may be recorded.