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The Golden China Fund, managed by HK based Greenwoods Asset Management, gained 4.5% net of fees in January 2007, compared with 4.2% loss in the MSCI China Free Index, 7.1% loss in the H-share Index and 23.5% gain in the Shanghai B-share Index.

According to the management of the fund, the highlight in January is the strong performance in the B-shares on the back of rumors that companies listed in B-share market in both Shanghai and Shenzhen will soon be allowed to buy back their B-shares and issue new shares in A-share market. In 2006, Greenwoods mentioned this approach as the preferred approach to an ultimate convergence of the two share classes. Given that B-shares still trade at 30% valuation discount to the A-shares, future valuation convergence will certainly help the Golden China Fund, which has 35% exposure in the B-shares, in the face of rising volatilities in the A-share market. Here is a snapshot of Chinese equity valuation in different market:

• A-shares are trading at around 39 times 2007 earnings due to strong liquidity into the stock market over the past 12 months;
• B-shares are trading at around 26 times 2007 earnings, a 30% valuation discount to the A-shares’;
• H-shares are trading at 17-18 times 2007 earnings, biased by large cap cyclical counters in the H-share Index.

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