Closed-end funds frequently sell for a discount, and three foreign investments funds are currently selling far below NAV value (7-11% discount). Although these funds are established for growth bets in the respective countries, since these funds invest in foreign stocks, they also act as a currency hedge against the declining dollar. With the potential for “QE3” looming, the USD might slip even further against select foreign currencies (namely the Chinese yuan).
China Fund (CHN):
- Discount of 11% to NAV
- Trading at $26.85 vs. 52-wk ($25.50-$35.33)
Although the yuan has gained roughly 6% against the dollar over the past year, the CHN fund has lost roughly 7.4% of its market value. Recent drops in Chinese stock prices are caused by a flight of investor money due to a few fraud causes in RTO companies as well as a generally negative sentiment toward Chinese growth potential. High inflation coupled with a decrease in the annualized GDP growth rate has scared many investors away. It is key to note that the GDP growth is higher and the inflation is lower than the US in the 70s, and the twenty year returns from that point were outstanding (9.6% annualized ’75-’95 / 13.2% ’80-‘00).
Germany Fund (GF):
- Discount of 10% to NAV
- Trading at $13.60 vs. 52-wk ($11.99-$18.90)
Germany has been hurt mainly by negative investor sentiment regarding Germany’s pledge to cover European debt as well as flat GDP reports. However, this fund also represents a euro vs USD play. The Euro has gained 13.5% vs the USD while the fund has gained 13.3% over the past year. Although, I don’t have strong prospects for the euro bet, I believe that German companies will do great overall - especially with core performers like Volkswagen (VLKAY.PK) that are currently trading for extremely low P/E (VLKAY is trading for 3.7 and just reported the best 1st half in company history).
India Fund (IFN):
- Discount of 7% to NAV
- Trading at $25.79 vs. 52-wk ($25.53-$40.94)
Investors are no longer flocking to India as a growth investment, and strong buying opportunities have now emerged. The India Fund has dropped 21.4% over the past year while the rupee has gained 3.3% vs. the USD in the past year. India is an extremely poor country that is just beginning to grow its middle class. As the consumer class develops, look for India’s GDP to continue showing strong growth.