EX-99 2 b73290a1exv99.htm NOVEMBER 2008 MONTHLY INSIGHT NEWSLETTER exv99
(MONTHLY INSIGHT LOGO)
THE CHINA FUND, INC. (CHN)
(PICTURE)
The Martin Currie
Shanghai team
IN BRIEF
         
Net asset value per share
  US$ 21.67  
Market price
  US$ 19.11  
Premium/(discount)
    (11.81 %)
Fund size
  US$ 393.3m  
Source: State Street Bank and Trust Company
     
At 30 November 2008   US$ returns
                 
    China Fund NAV     MSCI Golden Dragon*  
    %     %  
One month
    (0.2 )     (3.8 )
Year to date
    (51.5 )     (49.7 )
One year
    (47.2 )     (46.1 )
Three years %pa
    (14.9 )     9.1  
 
Past performance is not a guide to future returns.
 
Source: State Street Bank and Trust Company. NAV performance.
 
*   Source for index data: MSCI.
MANAGER’S COMMENTARY
What was unusual about the markets in November was not the volatility — we have had that for some time — but the dispersal in returns. The H-shares rallied by 9% during the month, and A-shares by 11%, while the Hang Seng ended flat and Taiwan fell over 9%, underperforming the Dow Jones. The main distinguishing factor was Beijing’s announcement of a 4-trillion-yuan stimulus package and additional large (108-basis-point) interest rate cut, which particularly benefited companies linked to domestic consumption. Taiwan came up with its own stimulus package, including the wheeze of giving shopping coupons worth NT$3,600 to every man, woman and child, but its stockmarket remains dominated by exporters. Given low trading volumes, H-shares also benefited from short-covering — not a feature in Taiwan, where shorting was banned until the month-end.
The stimulus package, the rate cuts and the many other counter-measures that are being announced on a daily basis are a welcome development. They show that the government is well aware of the severity of the problem; as Hu Jintao said, the crisis ‘is a test of our Party’s capacity to govern’. But all this will only partly cushion the fall in export demand and private investment; there are still plenty of high-price inventories to be worked through before any bounce in commodities will be sustainable. The Fund’s managers met a number of our invested companies during the month who continue to thrive in this difficult environment, either because of the nature of their business (agriculture, education, non-bank finance, internet or infrastructure-related) or location (in central or western China, areas that have so far been less affected by the slowdown). But these are generally not mainline stocks and have limited liquidity, meaning that they are not the initial beneficiaries of a ‘relief rally’. Still, the portfolio is seeing an unprecedented level of buybacks; Intime Department Stores, China Metal, SPG Land, The9, Honghua and Yuanta Financial were all buying stock in November. Natural Beauty is attempting privatisation, an option being considered by a number of the Fund’s portfolio companies.
Further stimulus measures can be expected from the Central Committee’s economic conference next week (tax cuts, stabilisation fund?), which should help to offset the ugly macroeconomic and company numbers ahead. Given worsening export figures, we expect the renminbi to come under pressure to depreciate. Although we expect the actual depreciation to be limited, we have hedged 5% of the portfolio by selling renminbi non-deliverable futures. The collapse of the Korean won is also putting pressure on Taipei to allow the New Taiwanese dollar to depreciate somewhat, so we have put on a similar-sized short position here as well.

 


 

INVESTMENT STRATEGY
The Fund is 97% invested with holdings in 63 listed companies and seven unlisted ones.
There was little portfolio turnover in November (this is a difficult time to be trading). We added some shares of ZTE, the supplier of telecom equipment, ahead of the probable year-end granting of 3G licenses. We also bought China Oilfield Services, the share price of which has plummeted with the oil price, although the exploration budget of its parent, CNOOC, looks solid.
The industries that appear to have been hit hardest by the crisis are materials, as the world suddenly moved from overstocking to de-stocking, and technology, much of which is subject to the discretionary spending whims of the now hard-pressed consumer. We consequently escaped from Yieh United Steel, reduced China Rare Earth, and sold out of Asustek and Powertech.
There were no changes to our unlisted portfolio in November, but our largest holding, the rural retailer Huiyan, is a prime beneficiary of the government’s decision to subsidize rural buying of household appliances with a 13% VAT rebate. In contrast, our seaweed-processing company, Bright Moon, has been caught with several months’ inventory of high-priced seaweed, as end-product prices come under pressure.
Chris Ruffle, Martin Currie Inc*
 
*   Martin Currie Ltd and Heartland Capital Management Ltd (HCML) have established MC China Ltd (MCCL), as a joint venture company, to provide investment management or investment advisory services to the range of China investment products managed by Martin Currie.
MCCL has appointed Martin Currie Investment Management Ltd (MCIM), or its affiliates, as investment manager of Martin Currie’s China investment products. HCML has seconded both Chris Ruffle and Shifeng Ke to MCIM, or its affiliates, on a full time basis with the same roles and responsibilities as if they were full time employees.

 


 

30 NOVEMBER 2008
FUND DETAILS
         
Market cap
  US$ 346.92m
Shares outstanding
    18,153,740
Exchange listed
  NYSE
Listing date
  July 10, 1992
Listed and direct investment manager
  Martin Currie Inc
Source: State Street Bank and Trust Company.
ASSET ALLOCATION
(PIE CHART)
Source: State Street Bank and Trust Company
SECTOR ALLOCATION
                 
    The China     MSCI Golden  
    Fund, Inc     Dragon  
Consumer discretionary
    24.3 %     4.0 %
Consumer staples
    20.9 %     2.4 %
Healthcare
    11.0 %      
Financials
    10.8 %     33.7 %
Industrials
    10.4 %     8.1 %
Information technology
    6.9 %     16.8 %
Materials
    4.8 %     6.2 %
Energy
    3.9 %     8.9 %
Utilities
    2.7 %     6.2 %
Telecommunications
    1.1 %     13.7 %
Other assets & liabilities
    3.4 %      
Source: State Street Bank and Trust Company. Source for index data: MSCI
     
PERFORMANCE   (US$ RETURNS)
                 
    NAV     Market price  
    %     %  
One month
    (0.2 )     (3.8 )
Year to date
    (51.5 )     (49.7 )
Three years %pa
    14.9       9.1  
Past performance is not a guide to future returns.
Three year returns are annualised.
Source: State Street Bank and Trust Company
15 LARGEST HOLDINGS (45.8%)
         
Queenbury Investment (Huiyan )
  Consumer discretionary   9.8%
China Huiyuan Juice
  Consumer staples   4.3%
Shandong Weigao Group
  Healthcare   3.2%
Wumart Stores
  Consumer staples   3.1%
Uni-President Enterprises
  Consumer staples   3.1%
Chaoda Modern Agriculture
  Consumer staples   3.0%
Daqin Railway
  Industrials   2.7%
Xinao Gas
  Utilities   2.7%
Yuanta Financial
  Financials   2.6%
Far Eastern Department Stores
  Consumer discretionary   2.4%
Fubon Financials
  Financials   1.9%
Qinghai Salt Lake Potash
  Materials   1.8%
Qingdao Bright Moon
  Industrials   1.8%
Mindray Medical International
  Healthcare   1.7%
China Medical System Holdings
  Healthcare   1.7%
DIRECT INVESTMENTS (16.6%)
         
Queenbury Investment (Huiyan)
  Consumer discretionary   9.8%
Qingdao Bright Moon
  Industrials   1.8%
China Silicon (Series A Preferred)
  Information technology   1.7%
Highlight Tech
  Industrials   1.5%
Wuxi Paiho
  Industrials   0.9%
Sino-Twinwood
  Information technology   0.8%
China Silicon
  Information technology   0.1%
teco Optronics
  Information technology  
Source: State Street Bank and Trust Company.
     
FUND PERFORMANCE (BASED ON NET ASSET VALUE)   (US$ RETURNS)
                                                         
    One     Three     Calendar     One     Three     Five     Since  
    month     months     year to date     year     years     years     launch  
    %     %     %     %     % pa     % pa     % pa  
The China Fund, Inc.
    (0.2 )     (32.87 )     (51.5 )     (47.2 )     14.9       9.6       8.8  
MSCI Golden Dragon
    (1.7 )     (37.3 )     (52.8 )     (53.9 )     (1.8 )     (3.7 )     n/a  
Hang Seng China Enterprise
    9.0       (37.8 )     (55.0 )     (57.9 )     12.7       13.5       n/a  
Shanghai Stock Exchange 180
    8.3       (25.7 )     (64.0 )     (59.3 )     32.5       12.8       n/a  
Past performance is not a guide to future returns.
Source: State Street Bank and Trust Company. Launch date 10 July 1992. Three year, five year and since launch returns are all annualised.
Source for index data: MSCI for the MSCI Golden Dragon and Copyright 2008 Bloomberg LP for the Hang Seng China Enterprise and the Shanghai Stock Exchange 180. For a full description of each index please see the index descriptions section.

 


 

PERFORMANCE IN PERSPECTIVE
(PERFORMANCE GRAPH)
Past performance is not a guide to future returns.
Source: Martin Currie Inc as at 30 November 2008.
THE CHINA FUND INC. PREMIUM/DISCOUNT
(PERFORMANCE GRAPH)
Past performance is not a guide to future returns.
Source: Martin Currie Inc as at 30 November 2008.
10 YEAR DIVIDEND HISTORY CHART
(PERFORMANCE GRAPH)
                                                                                         
Total
    0.50       0.08       0.11       0.00       0.13       0.21       1.78       3.58       2.51       4.01       12.12  
Income
    0.50       0.08       0.11       0.00       0.13       0.06       0.07       0.20       0.22       0.30       0.28  
Long-term capital
  0.00     0.00       0.00       0.00       0.00       0.00       0.67       3.27       2.29       2.73       9.00  
Short-term capital
  0.00     0.00       0.00       0.00       0.00       0.15       1.04       0.11       0.00       0.98       2.84  
Past performance is not a guide to future returns.
Source: State Street Bank and Trust Company.

 


 

30 NOVEMBER 2008
                                         
Sector   Company (BBG ticker)   Price     Holding     Value US$     % of portfolio
Hong Kong
                                    24.9 %
China Huiyuan Juice
  1886 HK    HK$ 9.3       14,059,500       16,871,182       4.3 %
Chaoda Modern Agriculture
  682 HK    HK$ 4.5       20,633,998       11,954,253       3.0 %
Xinao Gas
  2688 HK    HK$ 8.7       9,286,000       10,460,095       2.7 %
Shangri-La Asia
  0069 HK    HK$ 10.0       4,755,555       6,136,121       1.5 %
China Shineway Pharmaceutical
  2877 HK    HK$ 4.2       11,184,000       6,060,928       1.5 %
Huabao International
  336 HK    HK$ 4.9       9,135,000       5,716,668       1.5 %
Natural Beauty Bio-Technology
  157 HK    HK$ 1.2       32,780,000       4,948,659       1.3 %
Golden Meditech
  8180 HK    HK$ 1.2       35,040,000       4,837,718       1.2 %
Anta Sports
  2020 HK    HK$ 3.2       11,072,000       4,543,033       1.2 %
Ports Design
  589 HK    HK$ 8.7       3,933,500       4,481,594       1.1 %
Intime Department Store Group
  1833 HK    HK$ 2.0       12,568,629       3,243,475       0.8 %
FU JI Food & Catering Services
  1175 HK    HK$ 2.5       8,689,000       2,802,867       0.7 %
Honghua Group
  196 HK    HK$ 0.9       21,902,000       2,571,686       0.6 %
TPV Technology
  903 HK    HK$ 1.4       12,728,000       2,299,222       0.6 %
Sinofert
  297 HK    HK$ 3.5       4,860,000       2,163,456       0.5 %
Fushan International Energy
  639 HK    HK$ 1.6       10,740,000       2,161,830       0.6 %
Tianjin Development
  0882 HK    HK$ 2.2       6,756,000       1,882,938       0.5 %
China Travel International
  0308 HK    HK$ 1.0       10,982,000       1,374,504       0.3 %
Yorkey Optical International
  2788 HK    HK$ 0.6       16,424,000       1,186,751       0.3 %
SPG Land
  1688 HK    HK$ 0.8       11,037,000       1,082,324       0.3 %
Chinasoft International
  8216 HK    HK$ 0.3       19,230,000       843,628       0.2 %
China Rare Earth
  769 HK    HK$ 0.7       9,144,000       778,705       0.2 %
 
                                       
Singapore
                                    3.7 %
China Fishery Group
  CFG SP    SG$ 0.6       12,050,000       4,393,874       1.1 %
Hsu Fu Chi International
  HFCI SP    SG$ 0.7       9,484,000       4,244,174       1.1 %
China Milk Products Group
  CMILK SP    SG$ 0.4       11,607,000       2,770,259       0.7 %
CDW
  CDW SP    SG$ 0.1       60,000,000       1,988,928       0.5 %
China Energy
  CEGY SP    SG$ 0.1       12,199,000       1,051,394       0.3 %
 
                                       
Hong Kong ‘H’ shares
                                    9.6 %
Shandong Weigao Group
  8199 HK    HK$ 11.0       9,004,000       12,779,706       3.2 %
Wumart Stores
  995 HK    HK$ 6.2       15,126,000       12,139,678       3.1 %
China Oilfield Services
  2883 HK    HK$ 4.4       8,238,000       4,676,998       1.2 %
ZTE Corp
  763 HK    HK$ 16.8       2,060,759       4,467,136       1.1 %
Zijin Mining
  2899 HK    HK$ 2.8       10,408,000       3,760,261       1.0 %
Sichuan Expressway
  107 HK    HK$ 1.4       742,000       134,037       0.0 %
 
                                       
Taiwan
                                    25.1 %
Uni-President Enterprises
  1216 TT    NT$ 32.0       12,593,581       12,087,023       3.1 %
Yuanta Financial
  2885 TT    NT$ 12.7       26,635,545       10,161,658       2.6 %
Far Eastern Department Stores
  2903 TT    NT$ 16.7       18,511,584       9,286,655       2.4 %
Fubon Financial
  2881 TT    NT$ 20.0       12,603,000       7,552,941       1.9 %
Ruentex Development
  9945 TT    NT$ 16.7       12,694,000       6,368,164       1.6 %
Cathay Financial
  2882 TT    NT$ 35.0       5,993,788       6,211,832       1.6 %
Taiwan Secom
  9917 TT    NT$ 43.4       4,738,000       6,177,092       1.6 %
Synnex Technology
  2347 TT    NT$ 34.0       5,937,855       6,055,759       1.5 %
Lien Hwa Industrial
  1229 TT    NT$ 11.9       15,919,692       5,690,899       1.4 %
China Development Financial
  2883 TT    NT$ 6.6       27,751,738       5,535,508       1.4 %
FamilyMart
  5903 TT    NT$ 46.7       3,777,652       5,299,539       1.3 %
China Metal Products
  1532 TT    NT$ 16.9       9,019,881       4,579,170       1.2 %
Tripod Technology
  3044 TT    NT$ 31.7       4,402,867       4,192,703       1.1 %
Cyberlink
  5203 TT    NT$ 108.5       1,183,000       3,855,793       1.0 %
Wah Lee Industrial
  3010 TT    NT$ 23.6       4,118,821       2,913,822       0.7 %
Merry Electronics
  2439 TT    NT$ 24.8       3,584,340       2,664,917       0.7 %
 
                                       
United Kingdom
                                    1.7 %
China Medical System Holdings
  CMSH LN    £ 1.2       3,623,188       6,588,767       1.7 %
 
                                       
United States
                                    3.5 %
Mindray Medical International
  MR US    US$ 18.1       367,000       6,635,360       1.7 %
The9
  CMED US    US$ 12.8       356,200       4,573,608       1.1 %
WuXi PharmaTech Cayman
  WX US    US$ 6.0       310,190       1,848,733       0.5 %
Far East Energy
  FEEC US    US$ 0.1       10,478,634       943,077       0.2 %

 


 

                                         
Sector   Company (BBG ticker)     Price     Holding     Value US$     % of portfolio
Equity linked securities (‘A’ shares)
                                    11.5 %
Daqin Railway
          US$ 1.3       8,307,000       10,657,881       2.7 %
Qinghai Salt Lake Potash*
          US$ 8.1       887,909       7,054,011       1.8 %
Shenzhen Agricultural
          US$ 1.8       4,000,000       7,011,076       1.8 %
Dalian Zhangzidao Fishery
          US$ 2.3       2,270,000       5,114,310       1.3 %
Shanghai Zhenhua Port Machinery
          US$ 1.1       4,462,752       4,708,203       1.2 %
China Yangtze Power*
          US$ 1.0       4,169,077       4,190,485       1.1 %
Zhejiang Guyuelongshan
          US$ 1.0       3,582,000       3,616,118       0.9 %
Shanghai International Airport
          US$ 1.6       1,816,700       2,928,521       0.7 %
 
                                       
Direct
                                    16.6 %
Queenbury Investment (Huiyan)
          US$ 85,466.7       450       38,459,700       9.8 %
Qingdao Bright Moon
          US$ 0.2       31,827,172       7,001,978       1.8 %
China Silicon (Series A Preferred)
          US$ 238.0       27,418       6,525,484       1.7 %
Highlight Tech
          US$ 1.8       3,366,893       5,993,070       1.5 %
Wuxi Paiho
          US$ 0.3       11,734,701       3,679,990       0.9 %
Sino-Twinwood
          US$ 6.1       500,000       3,050,000       0.8 %
China Silicon
          US$ 2.4       183,396       436,482       0.1 %
teco Optronics
                  1,861,710              
 
                                       
Other assets & liabilities
                            13,156,437       3.4 %
INDEX DESCRIPTIONS
MSCI Golden Dragon Index
The MSCI Golden Dragon is a free float-adjusted market capitalisation index that is designed to measure equity market performance in the China region. As of May 2005 the MSCI Golden Dragon Index consisted of the following country indices: China, Hong Kong and Taiwan.
Hang Seng China Enterprise Index
The Hang Seng China Enterprise Index is a capitalisation-weighted index comprised of state-owned Chinese companies (H-shares) listed on the Hong Kong Stock Exchange and included in Hans Seng Mainland China index.
Shanghai Stock Exchange 180 Index
The Shanghai Stock Exchange 180 ‘A’ Share Index is a capitalisation-weighted index. The index tracks the daily price performance of the 180 most representative ‘A’ share stocks listed on the Shanghai Stock Exchange.
OBJECTIVE
The investment objective of the Fund is to achieve long term capital appreciation. The Fund seeks to achieve its objective through investment in the equity securities of companies and other entities with significant assets, investments, production activities, trading or other business interests in China or which derive a significant part of their revenue from China.
The Board of Directors of the Fund has adopted an operating policy of the Fund, effective 30 June 2001, that the Fund will invest at least 80% of its assets in China companies. For this purpose, “China companies” are (i) companies for which the principal securities trading market is in China; (ii) companies for which the principal securities trading market is outside of China or in companies organised outside of China, that in both cases derive at least 50% of their revenues from goods or services sold or produced, or have a least 50% of their assets in China; or (iii) companies organised in China. Under the policy, China will mean the People’s Republic of China, including Hong Kong, and Taiwan. The Fund will provide its stockholders with at least 60 days’ prior notice of any change to the policy described above.
The Fund is subject to the Investment Company Act of 1940 which limits the means in which it can access the ‘A’ share market. The Fund will continue to seek the most efficient way in which to increase its ‘A’ share exposure ensuring ongoing compliance with its legal and regulatory obligations.
CONTACTS
The China Fund, Inc.
c/o State Street Bank and Trust Company
2 Avenue de Lafayette
PO Box 5049
Boston, MA 02206-5049
Tel: (1) 888 CHN-CALL (246 2255)
www.chinafundinc.com

 


 

Important information: This document is issued and approved by Martin Currie Inc (MC Inc), as investment adviser of The China Fund Inc (the Fund). MC Inc is authorised and regulated by the Financial Services Authority (FSA) and incorporated under limited liability in New York, USA. Registered in Scotland (No BR2575), registered address Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2ES. Information herein is believed to be reliable but has not been verified by MC Inc. MC Inc makes no representation or warranty and does not accept any responsibility in relation to such information or for opinion or conclusion which the reader may draw from the newsletter.
Martin Currie Ltd and Heartland Capital Management Ltd (HCML) have established MC China Ltd (MCCL), as a joint venture company, to provide investment management or investment advisory services to our China product. MCCL has appointed Martin Currie Investment Management Ltd (MCIM), or its affiliates, as investment manager of our China funds. HMCL has seconded both Chris Ruffle and Shifeng Ke to MCIM or its affiliates on a full time basis with the same roles and responsibilities as if they were full time employees.
The Fund is classified as a ‘non-diversified’ investment company under the US Investment Company Act of 1940 as amended. It meets the criteria of a closed ended US mutual fund and its shares are listed on the New York Stock Exchange. MC Inc has been appointed investment adviser to the Fund.
Investors are advised that they will not generally benefit from the rules and regulations of the United Kingdom Financial Services and Markets Act 2000 and the FSA for the protection of investors, nor benefit from the United Kingdom Financial Services Compensation Scheme, nor have access to the Financial Services Ombudsman in the event of a dispute. Investors will also have no rights of cancellation under the FSA’s Conduct of Business Sourcebook of the United Kingdom.
This newsletter does not constitute an offer of shares. MC Inc, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors or staff may, at any time, have a position in the market referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets. The information or opinion expressed in this newsletter should not be construed to be a recommendation to buy or sell the securities, commodities, currencies or financial instruments referred to herein.
The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased.
It should not be assumed that any of the securities transactions or holdings discussed here were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.
Investing in the Fund involves certain considerations in addition to the risks normally associated with making investments in securities. The value of the shares issued by the Fund, and the income from them, may go down as well as up and there can be no assurance that upon sale, or otherwise, investors will receive back the amount originally invested. There can be no assurance that you will receive comparable performance returns, or that investments will reflect the performance of the stock examples contained in this document. Movements in foreign exchange rates may have a separate effect, unfavorable as well as favorable, on the gain or loss otherwise experienced on an investment. Past performance is not a guide to future returns. Accordingly, the Fund is only suitable for investment by investors who are able and willing to withstand the total loss of their investment. In particular, prospective investors should consider the following risks:
è   The companies quoted on Greater Chinese stock exchanges are exposed to the risks of political, social and religious instability, expropriation of assets or nationalisation, rapid rates of inflation, high interest rates, currency depreciation and fluctuations and changes in taxation, which may affect income and the value of investments.
 
è   At present, the securities market and the regulatory framework for the securities industry in China is at an early stage of development. The China Securities Regulatory Commission (CSRC) is responsible for supervising the national securities markets and producing relevant regulations. The Investment Regulations, under which the Fund invests in the People’s Republic of China (PRC) and which regulate repatriation and currency conversion, are new. The Investment Regulations give CSRC and State Administration of Foreign Exchange (SAFE) wide discretions and there is no precedent or certainty as to how these discretions might be exercised, either now or in the future. The Fund may, from time to time, obtain access to the securities markets in China via Access Products. Such products carry additional risk and may be less liquid than the underlying securities which they represent.
 
è   During the past 15 years, the PRC government has been reforming the economic and political systems of the PRC, and these reforms are expected to continue, as evidenced by the recently announced changes. The Fund’s operations and financial results could be adversely affected by adjustments in the PRC’s state plans, political, economic and social conditions, changes in the policies of the PRC government such as changes in laws and regulations (or the interpretation thereof), measures which may be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion and the imposition of additional import restrictions.
 
è   PRC’s disclosure and regulatory standards are in many respects less stringent than standards in certain Organisation for Economic Co-operation and Development (OECD) countries, and there may be less publicly available or less reliable information about PRC companies than is regularly published by or about companies from OECD countries.
 
è   The Shanghai Stock Exchange and Shenzhen Stock Exchange have lower trading volumes than most OECD exchanges and the market capitalisations of listed companies are small compared to those on more developed exchanges in developed markets. The listed equity securities of many companies in the PRC are accordingly materially less liquid, subject to greater dealing spreads and experience materially greater volatility than those of OECD countries. These factors could negatively affect the Fund’s NAV.
 
è   The Fund invests primarily in securities denominated in other currencies but its NAV will be quoted in US dollars. Accordingly, a change in the value of such securities against US dollars will result in a corresponding change in the US dollar NAV.
 
è   The marketability of quoted shares may be limited due to foreign investment restrictions, wide dealing spreads, exchange controls, foreign ownership restrictions, the restricted opening of stock exchanges and a narrow range of investors. Trading volume may be lower than on more developed stockmarkets, and equities are less liquid. Volatility of prices can also be greater than in more developed stockmarkets. The infrastructure for clearing, settlement and registration on the primary and secondary markets may be underdeveloped. Under certain circumstances, there may be delays in settling transactions in some of the markets.
 
è   The value of the Fund’s investment in any Quota will be affected by taxation levied against the relevant Qualified Foreign Institutional Investors (QFIIs) or in respect of investments held in the relevant Quotas. The PRC taxation regime that will apply to QFIIs and investments made in or through QFII quotas is not clear. The Investment Regulations are new and do not currently expressly contemplate the treatment of QFIIs and investment made through QFII Quotas.
Martin Currie Inc, registered in Scotland (no BR2575)
Registered office: Saltire Court, 20 Castle Terrace, Edinburgh EH11 2ES Tel: 44 (0) 131 229 5252 Fax: 44 (0) 131 228 5959 www.martincurrie.com/china
North American office: 1350 Avenue of the Americas, Suite 3010, New York, NY 10019, USA Tel: (1) 212 258 1900 Fax: (1) 212 258 1919

Authorised and registered by the Financial Services Authority and incorporated with limited liability in New York, USA.
Please note: calls to the above numbers may be recorded.