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China A shares seeing more light
HONG KONG, China (Reuters) -- China's $500 billion domestic share market is inefficient, short on research, and driven by retail punters -- and that's the way fund manager Chris Ruffle likes it. "I much prefer to compete in a retail market than to compete against people like myself," said Ruffle, Shanghai-based director of fund house Martin Currie. The firm is launching what it says is the first fund for overseas investors to invest in China's yuan-denominated A shares. "In some ways I sympathize with my colleagues who have to outperform the U.S. indices or the European ones," Ruffle told Reuters. Ruffle is looking to drum up interest in the Martin Currie China A Share Fund, which will close on July 17 and be listed on the Dublin stock exchange on July 23. Overseas investors have been confined for years to China's $11 billion hard-currency B share market. But China is prising open the yuan-denominated A share market, granting investment licenses to some foreign banks, known as the Qualified Foreign Institutional Investor (QFII) scheme. Taken overall, China's 1,200 A shares listed in Shanghai and Shenzhen are highly valued, driven by domestic investor liquidity to trade about 40 times their average historic earnings per share. That is way above Hong Kong's 15 times. But the price to earnings ratio of the Shanghai 180 index, which lists the "A" shares of larger firms, is a calmer 25 to 26 times. But Ruffle, who has been researching A shares since 1997, will limit his focus to about 100 firms. He said he expects to raise $50-$70 million from institutional investors and the fund would hold just 20 to 30 stocks at a given time, plus a smattering of convertible bonds. "An index approach to the A-share market is not the way to go. Bigger is not better in China by any means," said Ruffle. Edinburgh-based Martin Currie, which manages $9 billion globally, will invest in A shares through banking giant UBS, one of the first banks to get QFII approval. UBS has begun coverage of A share companies including freight airline Sinotrans Air Transportation Development Co Ltd, telecoms gear maker Zhongxing Telecommunications Corp and Baoshan Iron & Steel Co Ltd. Despite China's vaunted export machine, Ruffle said he is more focused on domestic consumption plays, in part because he believes the yuan will be revalued in early 2004.
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