MS China A Share Stock Price, News & Analysis

Morgan Stanley China A Share Fund, Inc. (NYSE: CAF) is a non-diversified, closed-end management investment company. According to the fund’s public disclosures, its investment objective is to seek capital growth by investing, under normal circumstances, at least 80% of its assets in A-shares of Chinese companies listed on the Shanghai and Shenzhen Stock Exchanges. The fund’s shares trade on the New York Stock Exchange under the ticker symbol CAF.

The fund focuses on the China A-share market and invests in A-shares of Chinese companies across multiple sectors. Based on available information, its portfolio has included exposure to areas such as aerospace and defense, banks, automobiles, household durables, media, pharmaceuticals, software and other sectors. As a non-diversified fund, it may invest a relatively larger portion of its assets in a smaller number of issuers than a diversified fund.

Investment objective and strategy

The stated objective of Morgan Stanley China A Share Fund, Inc. is capital growth. To pursue this objective, the fund invests primarily in A-shares of Chinese companies listed on the Shanghai and Shenzhen Stock Exchanges. Public descriptions of the fund state that, under normal circumstances, at least 80% of its assets are allocated to these A-shares. This focus ties the fund’s performance to the Chinese A-share equity market.

The fund has referenced the MSCI China A Onshore Index as a benchmark for evaluating its total return investment performance on a net asset value (NAV) basis in connection with its performance-related conditional tender offer policy. Comparisons to this index are used in determining whether certain conditional tender offers will be conducted, based on whether the fund’s total return investment performance measured on a NAV basis is less than or exceeds the total return investment performance of the benchmark over specified measurement periods.

Closed-end structure and NYSE listing

Morgan Stanley China A Share Fund, Inc. is organized as a closed-end management investment company. Unlike open-end mutual funds, closed-end funds typically have a fixed number of shares that trade on an exchange. The fund’s shares are listed on the New York Stock Exchange under the symbol “CAF.” Public announcements about the fund describe tender offers and share repurchase programs that are designed, among other things, to address the relationship between the fund’s market price and its NAV.

The fund has implemented a share repurchase program, described as a program for enhancing stockholder value by providing the ability to repurchase shares at a discount to NAV, subject to review by the board of directors and the fund’s ability to repatriate capital gains and income out of China. The board of directors regularly monitors this program as part of its review and consideration of the fund’s premium and discount history.

Advisory fees and management

Public communications from Morgan Stanley Investment Management state that the annual advisory fee of Morgan Stanley China A Share Fund, Inc. has been adjusted over time. Announcements have described reductions in the annual advisory fee, expressed as a percentage of the fund’s average weekly net assets. These changes are presented as effective on specified dates and are part of the fund’s disclosed fee structure.

Information released by the fund also notes that a named individual serves as the sole portfolio manager and is primarily responsible for the day-to-day management of the fund’s portfolio. This indicates that portfolio management responsibilities are concentrated in a specific portfolio manager within Morgan Stanley Investment Management.

Tender offers and conditional tender offer policy

The fund has announced multiple tender offers and a performance-related conditional tender offer policy. In certain announcements, the board of directors approved tender offers to acquire for cash up to a specified percentage of the fund’s outstanding shares at a price equal to 98.5 percent of the fund’s NAV per share, minus costs and expenses related to the tender offer, as of the relevant pricing date. These tender offers are subject to conditions, including that the fund’s shares are not trading at a premium to NAV at specified times.

Public disclosures describe a performance-related conditional tender offer policy under which the fund would conduct a tender offer for up to 25 percent of its then-issued and outstanding shares at a price equal to 98.5 percent of NAV (minus costs and expenses related to the tender offer) if two conditions are met over a defined measurement period: (1) the fund’s total return investment performance measured on a NAV basis is less than the total return investment performance of the MSCI China A Onshore Index over that period, and (2) the fund’s shares are trading at or below NAV at the conclusion of the applicable measurement period. If these conditions are not met, no conditional tender offer is conducted for that period.

Announcements also explain that if a conditional tender offer is triggered and more than the stated percentage of the fund’s then-issued and outstanding shares are tendered, the fund will purchase its shares from tendering stockholders on a pro rata basis, with odd-lot tenders for stockholders who own fewer than 100 shares still subject to pro ration. The size of any such conditional tender offer, the price at which shares are to be tendered and other terms and conditions are determined by the board of directors in its discretion, based on factors such as the then-current size of the fund, market conditions and the ability to repatriate the necessary cash, subject to local Chinese regulatory requirements.

Dividend declarations and distributions

Morgan Stanley China A Share Fund, Inc. periodically declares dividends. Public dividend announcements specify record dates, payable dates, the fund’s name, ticker symbol (CAF) and the amount of net investment income per share. These announcements state that the amount of net investment income to be paid by the fund is determined in accordance with federal income tax regulations and that it is possible that all or a portion of a given fiscal year’s dividend may be a return of capital, with the final determination of the source and tax characteristics of all distributions made after the end of the year.

The fund’s communications emphasize that the amount of dividends paid may vary from time to time and that past dividend amounts are no guarantee of future dividend payment amounts. They also note that investing involves risk and that it is possible to lose money on any investment in the fund. Morgan Stanley Investment Management states that it does not provide tax advice and that investors should consult a legal or tax professional for information concerning their individual situation.

Relationship with Morgan Stanley Investment Management

Morgan Stanley China A Share Fund, Inc. is associated with Morgan Stanley Investment Management, which, together with its investment advisory affiliates, is described in public materials as having a large number of investment professionals around the world and significant assets under management or supervision. Morgan Stanley Investment Management states that it seeks to provide long-term investment performance and service to a diverse client base that includes governments, institutions, corporations and individuals worldwide.

Public descriptions of Morgan Stanley characterize it as a global financial services firm providing investment banking, securities, wealth management and investment management services. The firm is described as having offices in numerous countries and serving clients worldwide, including corporations, governments, institutions and individuals. These descriptions provide context for the organizational environment in which Morgan Stanley China A Share Fund, Inc. operates as a closed-end fund focused on Chinese A-shares.

Risk considerations

Across its public announcements, Morgan Stanley China A Share Fund, Inc. includes statements that investing involves risk and that it is possible to lose money on any investment in the fund. These disclosures are consistent with the general risk warnings associated with investment products and highlight that the fund’s focus on A-shares of Chinese companies, its closed-end structure and its use of tender offers and share repurchase programs all exist within a framework where investment values can fluctuate.