Buy Chinese Stocks at a Discount Today

in #bloglast year (edited)



Chinese stocks have weathered the current COVID-19 pandemic quite well. Now is your chance to gain exposure to a basket of Chinese class A shares for a 16% discount. It is like spending 84 cents to pick up a dollar worth of goods.

Morgan Stanley China A Share Fund (CAF) is a closed end fund which invests in a diverse basket of Chinese companies listed on the mainland china stock exchange. The fund can trade at a discount or premium to its Net Asset Value (NAV) because it has a fixed amount of shares outstanding unlike ETFs and open end mutual funds which issue new shares for every share purchased by investors.

Since inception in 2006 CAF has traded at various levels of discount to NAV. Each time the discount was greater than 10% led to impressive returns for investors.

For example in 2011, CAF fell to a 15% discount from here the fund rallied strongly till 2013 when fund was trading at a premium of 13%. If you bought near the 15% discount and sold near the premium top you would have made 59% during this period.

Also in 2015 the fund traded at a 32% discount and then went on to rally 72% till 2017 when the discount shrank to 5%.

It's rare to see CAF trade at such a steep discount. We've only seen it happen a few times over the last decade. But in those cases, big returns were in the making.

In 2015, CAF traded at a 32% discount to liquidation value. That didn't last long, though... As investors started to pile back in, this discount closed.

This discount will not last forever and can provide strong future returns as the world recovers from COVID-19 shutdown.



Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.

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