Chinese investors scramble for a bite of Apple

(Reuters) – China’s rigid capital rules ban its citizens from investing directly in Apple Inc but

that’s not keeping them from seeking a piece of the iPhone maker’s success by buying shares in its suppliers – and even

companies rumored to be suppliers.

Investors have flocked to the only two China-listed firms that Apple has confirmed as suppliers, sending their

valuations to lofty levels, while speculation has become rife in firms thought to be indirectly doing business with the

technology giant.

Suzhou Anjie Technology Co Ltd has jumped more than 30 percent and Warren Buffett-backed carmaker

BYD Co Ltd has gained more than 15 percent since mid-January, when they were cited on Apple’s first-ever suppliers’ list.

China’s benchmark Shanghai Composite Index is up 5.6 percent for the same period.

“Investors want to share in

Apple’s growth as they believe sales of iPhones and iPads will remain strong,” said Zhou Feng, analyst at Donghai Securities

Co.

“Investing in Apple suppliers is not a bad idea, since they’re the girls hanging out with the rich

guy.”

Shares of Apple, which is listed on the Nasdaq, hit a record high of $644.00 this month.

They have since fallen 11 percent, closing at $571.70 on Monday, but are still up 41 percent in 2012.

The closest that

Chinese individuals can get to owning Apple shares, given the ban on the direct purchase of overseas stocks, is to buy into

one of the overseas investment funds permitted under China’s Qualified Domestic Institutional Investor (QDII) scheme that

have invested in Apple.

QDII is China’s main channel for outbound investment by individuals in foreign capital

markets.

The biggest exposure to Apple in a QDII fund is around 20 percent, via the Guotai Nasdaq-100 Index Fund which

tracks the Nasdaq-100 Index. The fund has gained 7.3 percent during the past 12 months, compared with a 21 percent drop in

China’s benchmark Shanghai Composite Index.

Given their limited access, many local investors have turned to

China-listed firms that directly or indirectly do business with Apple as proxies for the world’s most valuable

company.

Such a trading strategy is not uncommon in China’s strictly controlled capital markets.

Investors use

overseas REIT funds to speculate on the property market, for example, even though the performance of these products is based

on the commercial rental market.

SUPPLIERS OF SUPPLIERS

The hunt for exposure to Apple has at times taken

Chinese investors to the far periphery of Apple’s supply chain or deep into the realm of rumor and

speculation.

Shares of Success Electronics Ltd, which makes touch screens and has been cited by domestic media and

analyst reports as an Apple supplier, nearly doubled in February on expectations of the imminent launch of the iPad 3.

Nanjing Yunhai Special Metals Co,

which domestic media and analysts have said provides raw materials to suppliers of iPad and iPhone components, surged 35

percent in the fourth quarter of 2010, following the launch of the iPhone 4 earlier in the year. Its shares have since fallen

back, however, and the company barely made a profit in 2011.

But analysts believe that Anjie, with its proven and

direct relationship with Apple, can continue to perform well, even with its high valuations.

The company last week

forecast that first-half profit this year may grow as much as 70 percent, after surging 82 percent last year to 101 million

yuan ($16 million).

“You can hold on to Anjie as long as you have faith in Apple,” said Wu Binhua, analyst at Hwabao

Securities. “But too much reliance on one single customer is also a potential risk.”

Asset managers including China

Asset management Co and Yinhua Fund Management Co boosted their holdings in Anjie during the first three months of this year,

the company’s first-quarter earnings

report showed.

“It’s possible that the Apple suppliers list has generated more investor interest in us,” said Ma

Yuyan, an investor relations official at Anjie, which makes components used in iPhones and generates about half its revenue

from Apple.

Sixteen potential investors, including Haitong Securities Co, Bank of China Investment Management Co and

HFT Fund Management Co, a fund venture of BNP Paribas, visited Anjie in January and February, its quarterly report

showed.

BYD, which makes cars and batteries, declined to detail its business with Apple, citing a confidentiality

agreement. The company has yet to publish its quarterly results.

Anjie now fetches 35 times its 2012 earnings and BYD

trades at 46 times, far above the average of 29 times for firms listed on Shenzhen’s SME board, which lists small- and

mid-cap companies.

($1 = 6.3085 Chinese yuan)

(Editing by Ed Klamann)