Book Review

Investing in China: New Opportunities in a Transforming Stock Market 
by Winston W. Ma, CFA. Risk Books, London. April 2006

Review by William A. Hayes, Chair, Career Development Committee

Winston Ma is a NYSSA member and part of a growing trend of NYSSA authors. His new book, Investing in China: New Opportunities in a Transforming Stock Market , is destined to be an essential reference guide on the trading desks, in the deal departments of global banks, brokers, and investment firms, and on the bookshelves of investors. This is because China’s stock and capital market is very different from what we are used to. It is a creation and a tool of government policy, especially the State Owned Enterprises (SOEs), which are still a large part of the Chinese economy and which pose a continuing problem.

The result of this government control is a stock market divided into publicly tradable and nontradable shares. Most foreign investors avoid this complication by trading in Chinese stocks listed in Hong Kong and New York. However, for investment banks looking for M&A and private equity deals, much opportunity lies in the local market. The leading-edge competitive hedge funds and trading desks will look to profit by being first in.

Investing in China is primarily a technical guide to the legal and financial aspects of China’s stock and capital market. Such a book is essential because of the uniqueness of this market. At the moment, short selling is not allowed, and “futures and put options on broad market indices are still non-existent.” Convertible bonds are priced close to conversion. In the bond market, the “liquidity and range of terms are probably still not sufficient to support sophisticated financial products.”

It is also a rapidly developing market. China’s accession into the WTO necessitates large amounts of foreign capital and skills on the foreign capital markets. The local market’s decline is in marked contrast to China’s economic growth. The M&A and private equity businesses are growing quickly. The government is promoting change and modernization—for example, the Qualified Foreign Institutional Investors (QFII) category allows foreigners access to the nontradable stocks.

In time, sophisticated derivatives markets will come. China is “poised to become one of the biggest option trading markets in the world,” predicts Ma. Structured products departments are probably busily studying the potential. Clearly there is a lot to learn here, a lot to study—and a lot of potential profit. This will ensure that Investing in China will be on the desks of the eager opportunists who operate and control the financial services industry.

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From NYSSA News, June 2006