Nikko Asset Management, a fund division of a top Japanese brokerage Nikko Cordial Corp., will register its $200 million mutual fund tomorrow that will offer for the first time foreign investors direct access to the Chinese stock market. The fund will start from selling its yen-denominated shares to Japanese investors and plans to expand to the US and other countries.

The fund will provide an outlet for investors who want to tap the companies that are not represented on the Hong Kong and New York exchanges. These companies, whose stock is known as A-shares, are available only to domestic investors, which is why their price-earnings ratios have been boosted to about 50. The situation is aggravated by the fact the Chinese government holds 60-65% stakes in many of the stocks, with the danger that it will want to get rid of its investment later on putting downward pressure on the share price.
Nikko’s mutual funs will face the formidable task of separating the chaff from the wheat, picking healthy companies that will allow investors to share in the Chinese growth story investing in such sectors as port operators, construction companies and an array of consumer-goods companies. Nikko plans to invest in no more than 70 to 100 out of the wide range of 1,300 listed in the exchanges in Shanghai and Shenzhen.