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A Better Way to Buy China

By Dr. Steve Sjuggerud
Monday, December 1, 2014

I want to own Chinese stocks – now.
 
"Well then, just go buy 'em, Steve..."
 
I can't. And you can't either.
 
It's actually much harder to buy Chinese shares than you think...
 
You might be surprised to learn that most China-related investments available to Americans do not actually own local Chinese stocks. (For the most part, they typically own Hong Kong shares.)
 
The first legitimate "onshore" Chinese stock exchange-traded fund (ETF) for U.S. investors is only a year old. (Its symbol is ASHR.) I recommended this fund recently to my paid subscribers at around $25 a share. As I write, it's around $30.
 
The thing is, I wouldn't buy this fund today...
 
It's not because I don't like Chinese stocks. I do. It's because this fund has a problem today...
 
You see, this fund is unable to buy more Chinese stocks (for the most part).
 
The Chinese government significantly limits how much foreigners can buy in China... and ASHR has basically reached its quota... So this fund is now trading at a 5% premium to its liquidation value (as I write).
 
I don't want to pay a 5% premium when I don't have to. Fortunately, we have alternatives.
 
KraneShares, for example, has a fund with a similar mandate to ASHR, but it is currently well below its quota. It has plenty of "headroom" to put a lot more money to work in local Chinese shares. Its symbol is KBA.
 
In short, if you want to buy local Chinese shares through an ETF today, you're much better off in KBA than in ASHR.
 
A lot of times in ETFs, investors simply go for the biggest ETF in a category. There's often a good reason for that... as the biggest one often has the lowest fees and it's the easiest to trade.
 
But when it comes to China funds that invest in the local Chinese stock market, bigger is not only NOT better... in this case, bigger is WORSE.
 
I spoke with Brendan Ahern at KraneShares last week. And he told me that he is well below his quota. Specifically, he said "we could add a couple of zeros and we'd be fine... we've got a lot of runway ahead of us."
 
If you want to be invested in local Chinese stocks, don't do it through ASHR right now... It is at a 5% premium. That 5% premium will evaporate someday... and that will basically mean an unnecessary 5% loss for you.
 
Instead consider alternatives that have plenty of room to take on new money... Like the KraneShares Bosera MSCI China A Fund (KBA).
 
For more on KraneShares and China, visit www.KraneShares.com.
 
Good investing,
 
Steve




Further Reading:

Steve just told readers about one cheap and hated country he's NOT buying today. "I am a sucker for a cheap, contrarian play," he writes. "But I am not buying Russia." Find out why here.
 
There's one sector in the U.S. that Steve likes right now, too. "In short, yes, we are a few years into this biotech bull market," he writes. "But yes, we are staying invested... staying with the trend." Learn why Steve is sticking with biotech here.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Allstate (ALL)... insurance
W.R. Berkley (WRB)... insurance
Berkshire Hathaway (BRK)... Warren Buffett's holding company
Wells Fargo (WFC)... America's largest bank
FedEx (FDX)... shipping
Union Pacific (UNP)... railroads
JetBlue Airways (JBLU)... airline
Lowe's (LOW)... home improvement
Cisco (CSCO)... Big Cheap Tech
Intel (INTC)... Big Cheap Tech
Apple (AAPL)... consumer-products giant
Yahoo (YHOO)... search engine
Sony (SNE)... electronics
Visa (V)... credit cards
MasterCard (MA)... credit cards
Nike (NKE)... athletic apparel
Target (TGT)... retail
Wal-Mart (WMT)... retail
Macy's (M)... retail 
Becton Dickinson (BDX)... medical supplies
Medtronic (MDT)... medical devices
CVS Health (CVS)... pharmacies
Express Scripts (ESRX)... pharmacy benefit manager
Celgene (CELG)... biotech
Amgen (AMGN)... biotech
Sysco (SYY)... food services
Pepsico (PEP)... snacks and beverages
Dollar Tree (DLTR)... dollar stores
Northrop Grumman (NOC)... "offense" contractor
Raytheon (RTN)... "offense" contractors
Symantec (SYMC)... cyber security
Weyerhaeuser (WY)... timber

NEW LOWS OF NOTE LAST WEEK
 
Not many... it's a bull market!

premium teaser

Why now is the time to double-down in China...
 
Chinese stocks are some of the cheapest in world. And until recently, they've been the most hated. But that's starting to change...
 

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