Part-time world traveller and full-time investor Jim Rogers has been very bullish on China over the last two years. And this optimism clearly comes out in his latest book, A Bull in China - Investing Profitably in the World's Greatest Market.
"I'm such a believer in China's long-term prospects that I brought in a Chinese nanny to rear my daughter, Happy, born in 2003 and already a happy Mandarin speaker. As I've counselled before and will counsel again: get out of the dollar, teach your children Chinese, and buy commodities," he writes.
The question that crops up here is how foreign investors can invest in China to make money out of Rogers' optimism. Unlike other stock markets, China follows a split-share system.
As Rogers points out, "The answer, for the Chinese, is a 'split-share' system that allows Chinese companies to issue different classes of shares to domestic and foreign investors. It's an unwieldy, yet workable compromise that keeps investors coming while making the government's economic watchdogs feel relatively secure."
The split-share system starts with A shares. "On an individual basis, these are available to domestic Chinese investors only. They are denominated in renminbi, not freely convertible to international currencies. Since November 2002, Qualified Foreign Institutional Investors (QFIIs) such as large banks, funds, and securities companies with at least $10 billion in management, have been allowed to buy up to 10 per cent of a company's shares (still held in Chinese currency)," writes Rogers.
Then comes the B shares. As Rogers points out, "This class of shares was first created in the mid-1990s to be sold solely to foreigners using foreign currency. At that time, Chinese companies were attracted to the idea because foreigners eager to invest in China were at first willing to pay more per share than their domestic counterparts. So a bubble developed - but eventually popped, until people were practically giving away B shares… B shares are denominated in Hong Kong dollars on the Shenzen exchange and US dollars on the Shanghai exchange. Generally speaking, due to lower demand, the long-term performance of the B share market has lagged far behind the A share market even when the same company issues A and B shares with identical voting and dividend rights."
H shares are another form of Chinese shares. These are essentially shares of mainland Chinese companies listed on the Hong Kong stock exchange. "Many of China's best A-list companies have previously preferred the prestige and fund-raising potential of listing abroad - and that usually means listing in familiar Hong Kong. Sometimes companies can sell at better prices on foreign exchanges than at home; at other times, companies simply benefit from the exposure," writes Rogers.
The H shares are freely available to all foreigners. Similarly, shares of Chinese companies listed on the Singapore exchange are known as S shares. N shares are shares of Chinese companies listed in either the New York Stock Exchange or the NASDAQ, L shares are shares listed on the London Stock Exchange or the Alternative Investment Market (AIM) board in London and J shares are shares listed on the Tokyo stock exchange.
So, a foreign investor looking to invest in China has a lot of choice.
As Rogers writes, "A foreigner may be prohibited from buying A shares in a company listed in china, but could buy B, H, L, N, J, or S shares in the same company. Interestingly enough, Chinese domestic investors bear the brunt of the risk in China's developing market since they can invest only at home while most foreigners have more choices."
"I'm such a believer in China's long-term prospects that I brought in a Chinese nanny to rear my daughter, Happy, born in 2003 and already a happy Mandarin speaker. As I've counselled before and will counsel again: get out of the dollar, teach your children Chinese, and buy commodities," he writes.
The question that crops up here is how foreign investors can invest in China to make money out of Rogers' optimism. Unlike other stock markets, China follows a split-share system.
As Rogers points out, "The answer, for the Chinese, is a 'split-share' system that allows Chinese companies to issue different classes of shares to domestic and foreign investors. It's an unwieldy, yet workable compromise that keeps investors coming while making the government's economic watchdogs feel relatively secure."
The split-share system starts with A shares. "On an individual basis, these are available to domestic Chinese investors only. They are denominated in renminbi, not freely convertible to international currencies. Since November 2002, Qualified Foreign Institutional Investors (QFIIs) such as large banks, funds, and securities companies with at least $10 billion in management, have been allowed to buy up to 10 per cent of a company's shares (still held in Chinese currency)," writes Rogers.
Then comes the B shares. As Rogers points out, "This class of shares was first created in the mid-1990s to be sold solely to foreigners using foreign currency. At that time, Chinese companies were attracted to the idea because foreigners eager to invest in China were at first willing to pay more per share than their domestic counterparts. So a bubble developed - but eventually popped, until people were practically giving away B shares… B shares are denominated in Hong Kong dollars on the Shenzen exchange and US dollars on the Shanghai exchange. Generally speaking, due to lower demand, the long-term performance of the B share market has lagged far behind the A share market even when the same company issues A and B shares with identical voting and dividend rights."
H shares are another form of Chinese shares. These are essentially shares of mainland Chinese companies listed on the Hong Kong stock exchange. "Many of China's best A-list companies have previously preferred the prestige and fund-raising potential of listing abroad - and that usually means listing in familiar Hong Kong. Sometimes companies can sell at better prices on foreign exchanges than at home; at other times, companies simply benefit from the exposure," writes Rogers.
The H shares are freely available to all foreigners. Similarly, shares of Chinese companies listed on the Singapore exchange are known as S shares. N shares are shares of Chinese companies listed in either the New York Stock Exchange or the NASDAQ, L shares are shares listed on the London Stock Exchange or the Alternative Investment Market (AIM) board in London and J shares are shares listed on the Tokyo stock exchange.
So, a foreign investor looking to invest in China has a lot of choice.
As Rogers writes, "A foreigner may be prohibited from buying A shares in a company listed in china, but could buy B, H, L, N, J, or S shares in the same company. Interestingly enough, Chinese domestic investors bear the brunt of the risk in China's developing market since they can invest only at home while most foreigners have more choices."
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