Opalesque Exclusive: Greenwoods: Better than expected PMI indicates economic rebound in China, as Golden China Fund is up 52% YTD
6/8/2009 11:33:00 AM  

On June 8, Opalesque, a provider of premium online information related to the hedge fund and investment industries, made an exclusive report about Greenwoods extraordinary performance this year and our view on China’s macro economy and a few key sectors, as below:

Greenwoods: Better than expected PMI indicates economic rebound in China, as Golden China Fund is up 52% YTD

Greenwoods Asset Management, a China equity fund house based in Hong Kong, reported that its Golden China Fund, an equity Long/short fund focusing exclusively on China equities (H, B, and A shares, and ADRs) using bottom-up stock picking through thorough fundamental research, had returned 52.15% YTD (as of May 28, 2009, before fees), vs. 24.67% for the H-share index and 23.02% for the MSCI China Free Index. The fund has annualised 32.25% from July-04 to May-09.

The Golden China Plus Fund, which is long-biased on China equities plus less liquid assets (CBs, high-yields, PIPEs) returned 56.54% YTD (as of May 28, 2009, before fees). The fund offers an opt-in/Opt-out of the side-pocket on less liquid investments. Partners invested around $30m, and added several million dollars during 2008. And there is now a new class offering 15% return hurdle over a 2-year initial lock-up period.
Better than expected PMI

According to Greenwoods, China’s May manufacturing Purchasing Managers Index (PMI) fell slightly to 53.1%, better than market expectation and a clear indication of an economic rebound. In May, orders received by export-related sectors (including clothing, furniture, electronics and telecom equipment) rebounded notably, driven by stabilization of the external environment. All sub-indices of the PMI index fell in May except for new export orders and purchasing prices. Other indicators (corporate profits and the CICC Composite Leading Indicator) also firmed the trend of an improving economy that the PMI is reflecting.

Sector updates:

- Real estate: China’s cabinet recently issued a circular on adjusting the percentage of capital funding needed in fixed asset investment projects, effective from May 25, 2009. Greenwoods’ managers believe that this policy could help ease the liquidity pressure on property developers and boost property investment growth, maintain a positive view on China’s property stocks.

- Retail: Consumption growth in May is expected to continue accelerating from the April levels. Retail sales growth could be more encouraging in 2H09 thanks to a low base, if the economy rebounds as expected.

- Oil and gas: China’s resource price regulator, NDRC, has recently announced to raised China’s gasoline prices by 6.98% from Rmb5730/t to Rmb6130/t, and diesel prices by 8% from Rmb4990/t to Rmb5390/t, effective from June 1. Greenwoods’ managers estimate the refining gross margin might be less than US$4/bbl after the hike.

- Coal: China’s domestic coal prices remained stable. Coal stocks experienced a significant correction last week on rumors of resource tax reform; Greenwoods’ managers believe the recently weaker US dollar and strong crude oil prices could lend some support for the coal sector.

- Electrical equipment: In April, the utilization hours of thermal power equipment declined 14% YoY, while the sector’ s stock performance has been strong. For downside protection, Greenwoods’ managers have one short name in the sector due to its high valuation and mediocre earning forecast for 2009.