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How to invest in China
« on: April 28, 2012, 11:04:24 AM »

How to invest in China

There are many different ways to invest from oil and commodities to buying shares

How can you grab a share of the money to be made in the world's fastest-growing economy? In recent years, Chinese stocks have disappointed, with mainland shares falling in value heavily since 2010. But there's lots of different ways to participate - from buying China-focused investment trusts through to shares in the multinational corporations that will benefit from the rise of Chinese middle class spenders. Or maybe oil and commodities are the way to play China, as the country snaps up the world's resources. Here's where to start:

Buying shares directly

So-called "A" shares traded on the Shenzhen and Shanghai exchanges can only be bought by mainland Chinese citizens. Foreigners are allowed to buy "H" shares and "red chips", which are private, or partially state-owned, companies incorporated on the mainland but listed on the Hong Kong stock exchange. Big names include China Mobile, Bank of China and PetroChina. You can buy most international shares through any ordinary stockbroking account in exactly the same way as those traded in London. But beware the usual risks: individual shares are hugely volatile, and when you buy in an overseas currency, you can lose twice over – from share price and currency movements.

China stock market index trackers

There's not much to choose from. There are just a few exchange traded funds (ETFs), which trade like shares but mirror the price of an index (and are free from stamp duty), such as the iShares Xinhua China 25. You can buy ETFs through a broker in the same way that you buy shares. A general emerging-markets index tracker may be a better bet. Both Vanguard and Legal & General offer low-charge global emerging markets index funds (£500 minimum). Vanguard's fund is currently 17.5% invested in China.

China unit trusts

There are 31 funds in the China sector, according to Trustnet.com. Top performer over three years is GAM Star China Equity (up 81%) while the worst is HSBC China Equity (up 12%). Typical minimum investment is £500-£1,000, or £50 per month. Avoid high initial charges by buying through a discount broker, such as Hargreaves Lansdown.

China investment trusts

There are only two China-only investment trusts: Fidelity China Special Situations and JP Morgan Chinese. The Fidelity fund is much the biggest for UK investors. Fidelity is down 32% over the past year, while JP Morgan has fallen 21%. Investment trusts can be bought through stockbrokers or financial advisers. They generally have lower fees than unit trusts, but suffer from swings in their value (called the "premium" or "discount") when the trust is either worth more than its underlying shares, or less.

Global multinationals

Funds such as Morgan Stanley Global Brands, Rathbone Global Opportunities and Fundsmith Equity have enjoyed strong performance by investing in global household names, but few have been able to withstand the drop in confidence resulting from the Euro crisis. Fundsmith Equity's big holdings include L'Oreal, which has grabbed a 15% slice of the China cosmetics market.

Oil and commodities

As its roads are flooded with cars, is the oil price the way to play the Chinese economy? ETF Securities offers the ETFS Brent Crude index, but there are also more adventurous options, such as leveraged and futures trading, though this is probably best left to experts. Commodities sought by China – such as copper and iron ore – are another play on the growing demand. But last week investment bank Citigroup warned that the "super cycle" of commodity price rises – a basket of 24 raw materials has increased four-fold since 2001 – may be coming to an end as growth moderates and new sources of supply come forward. There are investment trusts specialising in metals and commodities, such as BlackRock World Mining. After a huge 122% gain in 2009, it fell 22% in 2011. Or you can buy shares in oil companies such as BP or Shell, although interestingly these tend not to correlate very closely with the oil price.

Patrick Collinson was a guest on a trip organised by Fidelity Investments. Fidelity's China Special Situations investment trust is a holder of shares in Ping An, Master Kong and Wu Mart.

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Re: How to invest in China
« Reply #1 on: May 24, 2012, 03:24:58 PM »

Rare Chinese coins? . .
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