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Reuters interview: Greenwoods’ Golden China Fund has posted a 104 percent return so far this year, and foresee further upside for Hong Kong-listed Chinese companies

July 17, 2009 

 Parvathy Ullatil & Clare Jim, Reuters

 Some Chinese Stocks Cheap Despite Rally

 Hong Kong. Chinese stocks listed on the mainland are overvalued after this year’s stellar rally, but there is further upside for Hong Kong-listed Chinese companies, with 30 percent to 40 percent of stocks still looking cheap, according to hedge fund Greenwoods Asset Management.

 The company, which manages one of this year’s top-performing Chinese hedge funds, said it has started shorting some shares in Chinese property developers, which have run ahead of the market on Beijing’s stimulus measures.

 “[Next year] will be even more upbeat than this year. We see a likely return to the bull market days of 2006 and 2007, but it will also be a lot more choppy,” said Joseph Zeng, a Hong Kong-based executive director with Greenwoods.

 The fund bets on smaller blue chips in Hong Kong, such as Internet company Tencent.

 With China’s consumer price deflation easing and Beijing promising to maintain its easy monetary policies, Greenwoods favors consumption-related stocks and resources companies.

 The fund is also invested in smaller financial stocks, including China Insurance International, while steering clear of market heavyweights such as ICBC.

 The Chinese pure play hedge fund manager has $350 million in assets under management, sharply lower than the $1 billion it was managing in 2007.

 Greenwoods’ Golden China Fund has posted a 104 percent return this year, Zeng said.

 The strong turnaround highlights the volatility of the Asian markets, and shows how hedge funds — meant to generate steady returns on long and short bets — are prone to riding out Asian equity market waves.

 Greenwoods’ funds have a 68 percent net long position spread across Chinese stocks listed in Hong Kong and mainland China and US-listed American depositary receipts.

 Greenwoods also manages several Yuan-denominated funds, investing in Shanghai and Shenzhen-listed A-shares only.