An Obvious Play

[David Sklansky]

First remember that I believe an edge comes from having information that no one else has or that others aren't paying attention to. All the other information out there is on average reflected in the stock price.

The piece of information that I think not too many peole have thought about is that during the Olympics the fact that China will be hosting the 2008 games will be given a lot of publicity. As of now most people don't know that. So given closed end funds like China Fund (CHN) or Greater China Fund GCF are fairly priced without this snippet, it seems you would have a small edge buying now and perhaps selling after the Olympics. (It also might be better to hold indefinitely or until their Olympics)

[Zeno]

Links to Morning Star Information on the funds.

CHN (http://quicktake.morningstar.com/CEF/snapshot.asp?Country=USA&Symbol=CHN&hsection=quote &pmts=)

GCH (http://quicktake.morningstar.com/CEF/snapshot.asp?Country=USA&Symbol=GCH)

The economy of China and Japan are also closely linked, much of the recent capital for growth etc comming from Japan.

[midas]

David:

How do you know these funds are fairly priced? PE ratio of the underlying Companies?

Also, 2 or 3 weeks ago there was a very good article on China business in the New York Times Magazine Section.

[GeorgeF]

Brief primer on closed end funds:

You can check discount (percentage assets exceed share price) at cefa.com. The discount exists because these funds charge expenses amoiunt other reasons (see economic texts). CHN seems to be selling at a 10% permium while JFC and GCH are selling at discounts. It is possible that CHN sells at a premium due to it's comparatively low expense ratio.

http://www.cefa.com/scripts/fundstat.asp?id=CHN
http://www.cefa.com/scripts/fundstat.asp?id=GCH
http://www.cefa.com/scripts/fundstat.asp?id=JFC


It is also usefull to see how funds with similar objectives track each other.
2yr Comparison of china funds shows CHN lagging.

http://finance.yahoo.com/q/bc?t=2y&s=CHF&l=on&z=m&q=l&c=jfc%2Cgch+DPCAX

Finally I suggest you read SEC filings at www.sec.gov. (http://www.sec.gov.)

Before you invest in a closed end fund you should confirm that it is superior to an ETF or mutual fund. Remember that a CE is a different animal from ETFs or mutual funds.

In general I find that cefa+yahoo charts+sec is the starting point for US investors investigating CE funds.

I forgot to add you also need to check out chineese ADRs www.adrbny.com. (http://www.adrbny.com.) Sometimes owning individual shares is better than a fund.

As to your china idea in general I posted a jim rogers story on the subject that may be interested.

Finally, My crazy investment idea: Israel fund ISL. Buy now before the jews do /images/graemlins/wink.gif

[plj8624]

It is a big assumption to say that at current levels Chinese stocks are fairly valued. I believe there is a fairly high level of speculative frenzy going on now and China is hot. As you say, on average known information is priced in but the strict version of Efficient Market Theory has been pretty well debunked.

Also, even if your play is +EV, you have to weigh that there might be higher +EV plays available.

[JellyFishy]

I am Overseas-Chinese young man and have strong business links in East Asia.

Olympic games unlikely to have much effect either (why is such major international event not known to public?), might boost tourism for a month.

PLC's way too much corruption and dumb bureaucrats, to reduce this effect go for the family type, main owner dominant companies. Otherwise imagine these Chinese managers taking whatever product they want from the company for friends and families, signing off expensive restaurant, hotel and hooker party bills as business expense. I'm not kidding, it's a common practice. My uncles used to boast to me how much company cash they can abuse.

If you want to make a Chinese play, go for Hong Kong PLC, much better run and more transparent, and many invest in China. HK companies compound foreign profits tax-free (How do I know? /images/graemlins/cool.gif)

If you insist on mainland investments, go for real estate in fast developing areas, the Chinese and Japanese loves to trade houses when they get cash. In fact most of the economies growth are coming from that sector.

Or wait until my little HK corp goes public.

[Mark Heide]

David,

It seems fairly difficult to find free information on the China Fund (CHN) and I couldn't find any on the Greater China Fund (GCF). I did find some information on the China Fund, but not enough to even consider buying it. What information do you have that ties this funds profitability to the Olympics? The fund has went from approximately 47 dollars a share to 27 dollars recently. I can't find the information that gives me the reasons why it is declining in value. Furthermore, just a few years ago it was at 10 dollars a share? Seems pretty risky, unless you know something I don't.

Good Luck

Mark

[David Sklansky]

I was talking merely about the publicity.

[lu_hawk]

This is bad advice.

First of all, China is 'hot' right now and Chinese shares and anything China is being bid up to valuations that can't be supported by the numbers. Also, closed end funds trade at a discount to their NAV probably 95% of the time, it is very rare for them to trade at a premium to NAV, but CHN is trading at an 11% premium. This is silly, you throw 11% of your money down the toilet the instant you buy the shares.

You could bring up other points such as the fact that the olympics are insignificant to an economy of 1.6 billion people, or that china has been receiving a lot of publicity as an investment opportunity for at least a couple of years now.

But really, you just can't get good results as an investor if you buy things based on hype and publicity.

[David Sklansky]

I have no opinion about China. I am talking about the price of the stock going up a bit in the next few weeks because people will buy it. Everything else I assume is neutral. If you are so sure its not you ought to be a billionaire.

[J_V]

My favorite Sklansky advice was the criteria for making a bet....very valuable in life. I would love to hear more non-card Sklansky tidbits....

The "Life" section of Poker,Gaming and Life, was very good.

[J_V]

You guys are all missing the point. The fundamentals are irrelevant here in capturing the perceived edge.

99% of the world has this same mental block.

[J_V]

You guys are all missing the point. The fundamentals are irrelevant here in capturing the perceived edge.

99% of the world has this same mental block.

[OrangeCat]

IMO, it’s not an obvious play at all.

While I agree that the mention of China during the Olympics will raise interest in Chinese investments by the general public, I think the net effect on Chinese stocks prices (and funds) will be insignificant when compared to the impact of commodity prices. For example, even if your prediction is correct, if oil should go up a couple of bucks you are in great risk of losing money in the short term.