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Published: October 6, 2009
The Chinese Civil War ended Oct. 1, 1949. The (winning)
communists controlled Mainland China and the (losing) Chinese
Nationalist Party was relegated to Taiwan.
The relations between the two governments since have generally
been hostile. Each side hated the other and claimed they were
the legitimate Chinese government. Now, after 60 stand-offish
years, Taiwan's leaders are trying a new -- more conciliatory --
approach.
In April, Taiwan began to allow Chinese investors to buy some
Taiwanese stocks for the first time since the end of the civil
war. In June, Taiwan expanded the areas where Chinese investors
could put their money.
Taiwan's market has soared +33% since April. The Shanghai index
has managed about half that in the same period.
Now, many observers are saying that Taiwan still has plenty of
room to run. Bloomberg reported that Lu Zheng-Ying, manager of
the SinoPac Small & Medium Capital Fund, said that the rally
would continue for the next two years. Lu predicted the rally
will push the index to a record: Above 12,682, or about +70%
higher than it is today.
I decided to ask Mike Turner, editor of Street Authority's
Trade of the Week, what he thought about Taiwan. Turner said
his proprietary software was giving a Taiwan-focused ETF a
"Strong Buy." He thinks the iShares MSCI Taiwan Index Fund
(NYSE: EWT) could gain another +33%.
Another Play
Another fund in a great position to continue to benefit from
Taiwan's growth is the China Fund (NYSE: CHN). This fund
focuses on small and medium-sized companies in China, Taiwan and
Hong Kong. These lesser-followed stocks have an average market
cap of about $1.5 billion.
As of the end of July, the fund's
top holdings included investment
firm Citic Securities, supermarket
retailer Wumart Stores and the
health-care company Shandong Weigao
Group. Management visits more than
1,000 companies each year. The fund
also can invest up to 25% of its
assets in unlisted, over-the-counter
companies, securities that tend to
be overlooked by other managers.
So far this year, CHN is up more
than +42%. Although it has lagged
the Shanghai Index, the fund hasn't
experienced the pullback Shanghai
has, either. Management says the
fund is taking a conservative
approach by investing in steadier
consumer growth companies and
staying clear of commodity and
property stocks. As the Taiwan,
China and Hong Kong gain value, CHN
has an attractive strategy.
CHN has achieved tremendous
long-term returns, averaging +20% a
year during the past 10 years.
Morningstar ranks the fund in the
top 1% of funds in the Pacific/Asia
ex-Japan category for the 10-year
period. Despite stellar long-term
returns, CHN sells at a -6% discount
to its holdings' net asset value.
Even better, CHN pays out one
distribution each year in January.
The last distribution was $5.82.
That's about a 25% yield.
-- Anthony Haddad
Staff Writer
StreetAuthority.com |
