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China Stocks

A daunting task for QDII & China Invest Co.

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No. I’m not kidding. Big money (billions of dollars) usually is a good thing, but not easy if one wants to beat market return in a certain time. You can ask Charlie Munger (Berkshire’s vice chairman) and he will tell you Berkshire is going to make a (market+2%) annual return from now on, according to the Q&A of his latest annual conference. For reference, Berkshire (BRK.A) has beat S&P 500 by 10% compound-anually for last 40 years.

Now Mr. Lou Jiwei, head of China Invest Co., will manage a $200 b fund. He can buy half of Exxon Mobile or GE using that money. Or, if Warren agrees, Lou can buy the whole Berkshire.

QDIIs, China AMC, China South, and Havest will each have $3 to $4 billions. Today I heard Shanghai Intl Fund Management Co. 上投摩根 attracted CNY 100 b ($13.5 b) subscription for its QDII focus on Asia pacific. They are both having the problem of “starting big”. A problem nice to have, nonetheless it IS a problem. One thing for sure is QDII can not expect to get the return of their sister funds investing in domestic A share, many of which already got +100% year to date (YTD).

This reminds me of one phenomena in the US and Hongkong stock market lately. Many Chinese stocks has gone up significantly, especially those blue (red) chip stocks such as Petro China (PTR, 0857.HK), China Life (LFC, 2628.HK, 601628.SS), ICBC (1398.HK, 601898.SS) etc. Although those Chinese stocks still trade at a discount in Hongkong (and thus NYSE), compared to Shanghai A share market, the gap has been closing.

Maybe some smarter guys are getting those cheaper shares in Hongkong and New York, in anticipation that QDII and China Invest Co. will come and pick up those same shares? Because those companies are familar to QDII guys, thus they will feel comfortable investing the money?

If QDII can not get ahead on Chinese ADRs, where can they find the edge?

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