Red-chip crackdown does Martin Currie no favours
Martin Currie Investment Management, the Edinburgh-based fund manager, is negotiating the relaunch of its $38 million China Heartland Fund. The fund has been suspended since May 2001 because of foreign exchange regulation problems, leaving its mainly specialist institutional investors unable to redeem their shares.
The China Heartland Fund, launched in June 1997, claims to be the only offshore fund that gives foreigners access to China's domestic A-share market. A shares - red-chip stocks - are issued by mainland companies in which investment is restricted to Chinese citizens. The highly liquid and speculative market suffered big falls in 2001, forcing the government to postpone the planned sell-down of its holdings, about 50% of most major listed companies, for fear of worsening the situation.
Despite this, and the possible loosening of restrictions on investing in Hong Kong-listed stocks by mainland funds, some foreign investors are still optimistic about the market. "The economy is still growing rapidly compared with others, and exports are very competitive", says Chris Ruffle, the fund's manager. Over the past year the A share portfolio has outperformed the Shanghai Composite Index by 6.5%.
Martin Currie's Bermuda-listed fund enabled indirect foreign investor exposure to the A-share market through a joint venture arrangement with Shanghai brokerage China Securities Corporation.