Buying a Dollar for 84 Cents By Chris Igou, analyst, True Wealth
Things are getting out of whack for one of China's major stock funds. Get this... You can buy a basket of Chinese stocks for just 84 cents on the dollar. That's a massive 16% discount to the true value of these companies. It's possible because, well, no one wants to invest in China. And it's setting up a big opportunity for investors who are willing to step up and buy. You might wonder how this is possible at all – and more important, how you can take advantage of it. I'll explain everything in today's DailyWealth...
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Buying a dollar for 84 cents is a no-brainer. It's about as obvious as an investment can get. And somehow, it's possible right now. You see, when investors give up on an asset, they lose all rationality. They often become unwilling to buy, even at a big discount. That's what's happening with the Morgan Stanley China A Share Fund (CAF) right now. Investors have fled this fund, which holds mainland Chinese stocks. And that selling pressure has pushed the fund well below the true value of its assets. This discount is possible thanks to CAF's structure. It's a closed-end fund. Unlike exchange-traded funds, closed-end funds can't create or liquidate shares based on demand. Instead, they trade at a premium or discount to the true value of their assets. When the fund is in hot demand, it will trade for a premium. But when investors want nothing to do with Chinese stocks, like today, CAF trades at a discount. Today, it isn't just a few pennies cheaper than normal... The fund recently traded at its largest discount to its net asset value in four years. And it's 16% below its true value as I write. Check it out... 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. In fact, CAF's discount shrank to less than 5% by mid-2017. Over that time, the fund rallied 72%. We saw another example of this back in 2011. CAF fell to a 15% discount in late December of that year. That was enough to pique investor interest. The fund soared to a 13% premium by January 2013. CAF rallied 59% over that same period. This is what's possible when CAF's discount starts to close. And it tells us we could see huge upside in the coming months. This is a truly rare situation. We can buy a dollar's worth of assets for just 84 cents. But to do it, you've got to invest in China, one of the world's most hated markets right now. I know that won't be for everyone. But if you can stomach it, history says it'll likely pay off. Good investing, Chris Igou Further Reading China was one of the hardest-hit countries in the coronavirus pandemic. But the virus also set off never-before-seen innovations. And that means one of China's most important markets could be a winner in the wake of this crisis... Read more here: The Unexpected Winner of Today's Coronavirus Outbreak. "Whatever you think about China, this isn't an investment trend to ignore," Brian Tycangco writes. Even with a slowing economy, China has continued to defy the naysayers. Thanks to technology, its massive population is driving demand in several key markets... Learn more here. |
INSIDE TODAY'S
DailyWealth Premium It's time to buy a basket of China's top real estate companies... China's homeownership culture is likely to drive real estate prices higher. And this fund is a dirt-cheap way to take advantage of it with big upside potential... Click here to get immediate access. Market Notes TESTING FOR A POTENTIAL COVID-19 TREATMENT Today's company is researching a treatment for coronavirus patients... The U.S. Centers for Disease Control and Prevention has reported more than 1 million cases of COVID-19 in the U.S., and more than 55,000 "confirmed and probable" deaths... And there is still no specific medicine to treat the infection. However, drug companies across the world are working on a solution. And today's company is testing one of its drugs on COVID-19 patients in a late-stage trial... AstraZeneca (AZN) is a $135 billion drug giant. It has treatments for all types of ailments... from kidney disease to asthma to diabetes. And now, it's helping in the fight against the pandemic. AstraZeneca plans to start testing for COVID-19 this week. And it also plans to enroll 900 patients in a trial to test its diabetes drug as a treatment for patients with additional risk factors. AZN shares are up nearly 90% over the past three years, including dividends. They recently hit a fresh all-time high. And as this drug company continues to aid the medical community during the crisis, this rally is likely to continue...
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