FXI component share PERs

[michael k.]

I calculated the PER for the 10 dual-listed H shares in FXI as well as
for FXI as a whole, based on the PER information on the Hong Kong
Stock Exchange website (not sure if this is reliable) as of July 11
and the weighting numbers on the iShares website as of July 6. The
PER information seems to be based on 2006 earnings.

The PER for the 10 dual-listed H shares was 32.13. The PER for FXI as
a whole was 28.43. Now, the comparison is difficult because the
component companies are in different industries and they all have
their own quirks. But, these numbers seem to support the idea that
FXI as a whole should rise at about the same rate as the 10 dual-
listed H shares in FXI as the AH gap is closed. In other words, since
the PER for FXI as a whole is lower than the PER for the 10 dual-
listed H shares, the PER should not act as an impediment to the rise
of FXI.

This all assumes that, as QDII quota is increased, mainland investors
will consider all H and RC shares in the same light as dual-listed H
shares. If a formal arbitrage mechanism is also introduced, the dual-
listed shares will of course get the biggest push. But, without any
formal arbitrage mechanism, theoretically at least, all of the shares
should be evaluated within the same valuation framework.