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Chinese stocks have soared this year on the wave of upbeat
news coming out of the country, which has also boosted the
benchmark Shanghai Composite Index by +48.3%
since the start of the year. That's more than
three times the
+15% rise for
the S&P 500.
After such a huge run up, the index may be ready for a
breather. And a short-term pullback may provide just the
entry opportunity long-term income investors have been
waiting for.
But there's one not-so-small problem...
Foreign investors like you and me can't invest in most of
the companies listed on either of mainland China's two main
stock exchanges -- the Shanghai or the Shenzhen. Only
domestic Chinese investors and some select foreign
institutions can.
However, there is a loophole whereby foreign investors can
access the normally "off limits" market and 43 of its most
steady dividend payers.
"H" Shares for Mainland China Dividend Payers
The key to capturing yields from China lies with an island
only one-third the size of Rhode Island: Hong Kong. Unlike
the Shanghai and Shenzhen, the Hong Kong Exchange is open to
foreigners. Moreover, a class of so-called "H" shares that
trade on this exchange give foreign and U.S. investors
access to mainland Chinese companies.
"H" shares are shares of a company incorporated in the
Chinese mainland but listed on the Hong Kong Exchange. Many
of these companies also trade as "A" shares on Shanghai or
Shenzhen, which are off limits to foreigners, so the "H"
shares are one way you can play the mainland.
If steady income is what you're after, some of these "H"
shares are likely your cup of tea. The Hang Seng China
Enterprises Index, or H-Share Index, includes some of
mainland China's biggest banks, oil companies, and telecom
providers that churn out steady cash flow and dividend
payouts. These names include Industrial and Commercial Bank
of China, PetroChina, and China Life Insurance -- about 43
companies in all.
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Like all shares that trade on the Hong Kong Exchange, "H"
shares trade in Hong Kong dollars. You can trade "H" shares
directly on the Hong Kong exchange if you open an
international account with a broker with an international
desk. Interactive Brokers and E-Trade are two brokers that
offer international trading desks for easy access to Hong
Kong markets.
How to Invest Directly in China Without an International
Account
Some of these 43 companies also trade as
American depository
receipts (ADRs) on the Big Board.
But if you limit yourself to a major U.S. stock exchange,
you'll miss out on some of the leading players in China's
growth story -- companies like Industrial and Commercial
Bank of China (ICBC) (Hong Kong: 1398), one of the world's
largest banks by market cap.
Conversely, there are a number of U.S.-traded funds that buy
the "H" shares directly, so you get the best of both worlds.
I brought one of these funds to the attention of my
High-Yield International readers last month when it
yielded 11.9%. (I understand many investors have some
apprehension about buying stocks on foreign exchanges, so
whenever possible I do my best to offer international
high-yield ideas that also trade in the U.S.)
So while the companies may offer strong cash flow
and steady dividends, you have to pick shares at opportune
times to capture high yields.
After the massive Chinese market rise, a near-term pullback
is just the chance long-term investors have been waiting for
to lock in this and a dozen more high-yielding China plays
we showcase in High-Yield International.
Good investing!
Carla Pasternak's Dividend Opportunities
P.S.
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Research@DividendOpportunities.com,
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