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Investing in China: I

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I have talked about investing in China many times in this blog. Recently a good friend of my wife asked this question: how to protect her parents retirement (life style) now that they are near retirement?

I think this is a very good question, also a very common one. Recently I read Charlie Munger’s book Poor Charile’s Almanac, and he said three stocks are enought (diversified) if they are good stocks and the person trully understands it. I agree.

So, let me apply this three stocks approach and run a hypertheoritical portfolio for my wife’s friend (‘s parents 🙂

The first stock comes to mind is 601628.SS, China Life Insurance (NYSE: LFC; HKSE: 2628.HK). I talked China Life couple times, during its Shanghai IPO (secondary offering to be precise), and “Got Yuan” post. I believe China Life is uniquely positioned to take advantage of weakened competitors (China Ping’An and AIG China subsidiary), and this down market.

China Life Insurance logo

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Ping An and China Life bid shares from each other

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PingAn insurance logo

This is what I heard from a guest at “Market today” (China-CBN). Here is how it works: China Ping’an insurance (601318, 2318.HK) and China Life insurance (601628, 2628.HK, LFC) holds significant shares (more than 3%) from each other. Now they are buying shares from each other in the market, which will drive their stock prices higher. This in turn, will bring more profit (unrealized investment gains) to each company, according to the new accounting rules being effective this year in China. As a side note, investment gains exceeded many public companies’ original (main) business profit this year. For instance, Youngor (600177), the famous apparel maker, makes more money from the investment in Citic Securities (600030) than from shirts/jackets.

I’m not accounting expert, nor have I researched how similar things are counted in US GAAP. But my gut feeling tells me China new accounting rule is one reason for the China bubble right now. Because at the end of the day, those paper profit will be gone as fast as they come.

BTW, I’m just curious, when China Life (LFC) reports to SEC, what kind of accounting do they use?

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LFC China Life Insurance Debut Tomorrow in Shanghai

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The party is finally here. The ticker symbol is 601628 (not available at Yahoo Finance yet), it was priced at 18.88 (lots of 8 here). And it could go to 30s (note I usually make wrong guess, so take it for what it worth…)

The ticker symbol in Hongkong is 2628.HK (from Yahoo Finance). And LFC is the ticker symbol at NYSE.

Disclosure: I don’t have any postions on this.

Follow up (08Jan07, 7:48PM Central time): it opened 37.00 Yuan, up 96% from 18.88.

china life insurance LFC