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Foreigners climb on board China's A-train

China's A-share market has such a shady reputation that foreign investors might have been expected to revel in their exclusion from it. But its recent opening to outside institutional investors has been greeted with enthusiasm.

CHINA'S A-SHARE market - the part of the People's Republic's equity market that until recently only domestic investors could access - is distinctly investor-unfriendly.

It has after all been well headlined that some of China's less scrupulous brokerages have been involved in price ramping, money laundering and other irregularities on the A-share market. Few of the 1,200 companies listed have ever heard of the term corporate governance. In addition the $500 billion market has a P/E ratio of around 40, making it the world's most expensive. It manages, though, to combine this with being one of the world's worst performers.

It would seem a wise plan to keep your money as far away as possible from the A-share market. Yet when the Chinese authorities announced at the end of 2002 that it would be opened to foreigners under a qualified foreign institutional investor (QFII) scheme, global investment banks raced to be the first to jump in. Citigroup, Goldman Sachs, Morgan Stanley, Nomura and UBS were all in the leading pack. And in the second week of July, UBS took the plunge and became the first foreign institution to invest directly in this opaque world.

The Chinese view opening up the A-share market as critical to reform.

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