Matthew Forester Nov 0905

How to Invest in China Presentation to the Global Independence Center’s 24th Annual Monetary and Trade Conference

Philadelphia Federal Reserve Bank November 9, 2005 Matthew L. Forester VP, Portfolio Manager Cumberland Advisors, Inc. matt.forester@ cumber.com (856) 692-6690 x 313

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What are Chinese equities?

Correlations to Other Equity Markets Closed-End Funds Open-End Funds ETFs: Exchange-Traded Funds

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Chinese Equities  

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A, B, H or “Red Chip” Shares A shares only traded by Chinese citizens in Renminbi A Shares either Legal (“institutional”) or Public Only Public shares traded at exchanges

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Chinese B Shares  

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B Shares introduced in 1992 Legally identical to A shares but only traded by foreign investors.

Listed Shanghai (founded 11/90) or Shenzhen (founded 7/91) Denominated in Renminbi but traded in foreign currencies Shanghai B – US Dollars Shenzhen B – Hong Kong Dollars

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Chinese Equity Overview 

Total A & B Shares   

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52 companies in 1992 1,160 in 2001 1,400 today

Beijing controls 2/3rds of these 1,400 Companies

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Chinese H Shares & “Red Chips”      

Approximately 200 Additional Companies H Shares listed Hong Kong H Shares have Chinese Incorporation Represent State-Owned Enterprises “Red Chips” have Hong Kong incorporation “Red Chips” have substantial state ownership

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Correlations Shenzhen A Shares Shanghai B Shares Shenzhen B Shares

Shanghai Shenzhen Shanghai Shenzhen A Shares A Shares B Shares B Shares 0.85 1.00 0.41 0.38 1.00 0.42 0.41 0.69 1.00

Hong Kong Singapore Taiwan Japan USA France Germany UK Australia Average

0.02 0.00 -0.03 0.01 -0.03 -0.02 0.01 -0.02 -0.01 -0.01

0.04 0.01 -0.02 0.05 -0.02 -0.01 0.00 -0.02 -0.04 0.00

0.22 0.19 0.12 0.02 0.03 0.04 0.08 0.05 0.15 0.10

0.18 0.13 0.12 0.05 0.05 0.04 0.07 0.05 0.13 0.09

Source: Kuan-Pin Lin, Albert J. M enkveld, Zhishu Yang, China and the World Equity M arkets: A Review of the First Decade, Working Paper, 2004, National Center for Economic Research, Tsinghua University, Beijing.

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Correlations FTSE/Xinhua China 25 (Total Return)** FTSE/Xinhua China 25 (Total Return)** S&P 500 (Total Return) EAFE (Gross Index) EMERGING MARKETS (Gross Index) Hong Kong (Gross Index) KOREA (Gross Index) Taiwan (Gross Index) JAPAN (Gross Index)

1.00 0.44 0.44 0.61 0.61 0.55 0.43 0.35

Hong Kong (Gross Index)

S&P 500 EAFE EM (Total (Gross (Gross Return) Index) Index)

1.00 0.84 0.77 0.63 0.62 0.48 0.46

1.00 0.79 0.67 0.56 0.39 0.64

1.00 0.76 0.81 0.76 0.52

1.00 0.57 0.54 0.42

KOREA Taiwan JAPAN (Gross (Gross (Gross Index) Index) Index)

1.00 0.65 0.49

1.00 0.23

1.00

Source: Barclays Global Investors

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International Fund Costs Institutional Funds Network (Fidelity) International: Emerging Markets

# of Funds

Assets ($mm)

Expense Ratio

12b-1 Fee

295

91,224

2.02

0.37

Source: Kanon Bloch Carre, 3Q, 2005 Performance Analysis, Institutional Funds Network NTF Funds Quarterly Performance Ratings

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Closed End Funds AUM Expense Fund Name Manager ($mm) Ratio Templeton Dragon Fund Templeton 626 1.54% China Fund Inc. Martin Currie 257 1.36% Greater China Fund Baring Asset 198 2.14% JF China Region Fund Jardine Fleming 57 2.19% Average

Premium/ Discount Range -21% to +12% -21% to +65% -21% to +17% -21% to +34%

1.81%

Source: Barclays Global Investors

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Open-End Funds Ticker FHKCX MCHFX TCWAX ICHKX EVCGX

Fund Name Fidelity China Region Matthews China Templeton China World A Guinness Atkinson China & Hong Kong Greater China A

Manager Fidelity Matthews Templeton Guinness Atkinson Eaton Vance

Average

AUM ($mm) 424.5 410.9 122.7 119 97.3

Expense Ratio 1.22 1.43 2.14 1.67 2.67 1.83

Source: Morningstar

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What is an Exchange-Traded Fund? ď Ž

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Simple, powerful tool to mimic the price performance and dividend yield of an index or a basket of stocks Trades like a regular stock on a listed exchange; trades in the secondary securities market at negotiated prices

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China ETF Pure Plays Ticker FXI PGJ

Fund Name iShares FTSE / Xinhua China 25 Index Fund PowerShares Golden Dragon Halter USX China Portfolio

Number of AUM Companies ($mm)

Expense Ratio

Listed

25

1270

0.74%

NYSE

49

66

0.60%

AMEX

Source: Barclays Global Investors, PowerShares.

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Sector Allocations PowerShares Halter USX China Index PGJ Consumer Discretionary 3.6% Consumer Staples 0.5% Energy 18.6% Financials 4.5% Health Care 0.3% Industrials 6.5% Technology 27.2% Materials 12.8% Telecomm 19.1% Utilities 4.3% ** data as of 11/02/05

iShares FTSE / Xinhua China Fund FXI Resources 25.48% Non-Cyclical Services 22.96% Financials 16.93% Cyclical Services 12.82% General Industries 6.59% Utilities 5.87% Basic Industries 4.91% Cyclical Consumer Goods 3.56% ** data as of 9/30/05

Source: Barclays Global Investors, PowerShares.

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Questions and Comments

Philadelphia Federal Reserve Bank November 9, 2005 Matthew L. Forester VP, Portfolio Manager Cumberland Advisors, Inc. matt.forester@ cumber.com (856) 692-6690 x. 313