MCIM eyes mainland A-share access
Scottish fund manager Martin Currie Investment Management (MCIM) has teamed up with one of the mainland's largest brokerages to give foreign investors access to China's A-share markets - originally intended solely for mainland investors.
A new US$36 million fund - the China Heartland Fund - is believed to be the first Western fund to tap China's two A-share markets, which have a combined market capitalisation of $200 billion and over 700 listed companies.
Mainland laws have barred foreign investors from investing in A-share markets, restricting them to the much smaller and less liquid B-share markets.
Observers said the MCIM fund had found a simple but effective way to avoid government regulations.
The fund has been launched in partnership with China Securities Corporation (CSC) - the mainland's second largest securities broker - and was listed on the Bermuda Stock Exchange last week, after a private placing with institutional investors raised $36 million.
MCIM - which has $9.85 billion under management - said it would measure the performance of the fund against a reference portfolio of A shares, according to the fund's prospectus.
'So far, [foreign investors] do not know much about those markets but they offer great potential,' the fund's manager Chris Ruffle said.
According to the prospectus, the fund would deposit up to $30 million in CSC's B-share account at Citibank NA, with the money available for use by CSC for 'its own purposes without restriction'.
This effectively means CSC could use the money to invest in A-share markets.
Analysts said some foreign investors might have already invested in the A-share markets in similar ways but MCIM could be the first big Western investment company to devote its publicly listed fund to do so.
Mr Ruffle said MCIM had obtained legal opinion from a leading law firm in Beijing and said mainland regulators had voiced no opposition when they were presented with the project.
He said returns from the fund would come in terms of service charges payable by CSC, deriving from the performance of a reference portfolio of A shares that Mr Ruffle helped create.
He said the fund was expected to generate an average annual return of between 20 and 25 per cent.
The fund would focus on investing in mainland companies principally operating in the hinterland of China instead of Shanghai, Shenzhen and Hong Kong, he said.
'I particularly like those medium-sized and small township enterprises which, unlike state-owned factories, are well managed but cannot come to list in Hong Kong, ' Mr Ruffle said, adding that he had already visited over 100 such factories in the past few years.
He said the fund would also invest in B shares, H shares and shares listed in New York, as well as other equity-related mainland enterprises.
To help him pinpoint high-growth enterprises, MCIM and CSC have formed a Shanghai-based joint venture, Heartland Investment Consulting Co, that will provide research into investment opportunities through a network of regional offices.
Mr Ruffle said he planned to recruit a dozen analysts working for him in the cities of Shenyang, Beijing, Wuhan, Chongqing and Shenzhen.