Markets

Property, auto stocks are good bet, analyst says

By Irene Shen (China Daily)
Updated: 2011-04-21 13:52

SHANGHAI - Investors should be buying China's auto and property stocks even as the government tightens monetary policy to tame inflation, according to Deng Xiaofeng, who manages the $1.8 billion Bosera Theme Sector Fund.

Deng, whose fund was the fourth-best performer last quarter out of 735 China funds, said that the nation's largest car and real estate companies will extend rallies because of valuations and on the prospect that they will weather policy tightening measures better than their smaller rivals. He joins Franklin Templeton Investments' China venture in favoring developers after a sell-off last year drove an industry gauge to 47 percent below the four-year average.

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"China's automobile and property industries are still growing," Deng said on Tuesday. "We are positive on the industry leaders as the markets are far from being saturated."

The Theme Sector Fund has returned 102 percent for investors since Deng took it over in March, 2007, compared with an average industry return of 58 percent, according to data compiled by Howbuy, a consulting company that ranks investment funds. It is 10th among 218 China funds during that span, Howbuy said.

The Bosera fund rebounded from an 11 percent drop last year, spurred by investments in Shanghai Automotive Industry Corp (SAIC) and China Vanke Co. SAIC jumped 26 percent last quarter, while Vanke rose 5.7 percent. Both stocks plunged more than 23 percent in 2010. The fund rose 7.2 percent in the first three months, compared with a 4.3 percent advance for the Shanghai Composite Index.

"Economic growth will continue to increase companies' earnings," said Deng. He worked at the asset management department of Guotai Junan Securities Co before joining Bosera.

The nation's carmakers will boost sales this year as the government sustains economic growth through measures to spur domestic spending, he said.

SAIC, the fund's biggest holding according to its annual report, has rallied 21 percent in Shanghai this year. It trades at 9.8 times estimated earnings, compared with the average of 19.4 times in the past five years, according to data compiled by Bloomberg.

The automaker said on March 30 that profit more than doubled in 2010 as faster economic growth helped it sell more cars with partners General Motors Co and Volkswagen AG. Government incentives and rising incomes in China boosted industry vehicle sales 32 percent last year, helping the nation remain the world's largest auto market for a second year, figures from the China Association of Automobile Manufacturers show.

Deng said that he's also maintaining his holdings in China Vanke, the third-biggest in his fund according to its annual report, even as the government adopts measures to curb gains in property prices which reached a record high last year.

A gauge of property developers in the Shanghai Composite rebounded 7.7 percent last quarter. The property gauge trades at 13.4 times estimated earnings, compared with a five-year average of 25.6 percent, according to data compiled by Bloomberg. Vanke trades at 9.8 times profit.

The real estate measure slumped 28 percent in 2010 as the central bank and government intensified efforts to curb speculation after property prices rose for 19 consecutive months to December.

Big property developers have sufficient cash to withstand the government's tighter monetary policies, Deng said. Low valuations make property stocks a "good choice to buy", Pan Jiang, a Shanghai-based portfolio manager at Franklin Templeton's local fund management unit, said on Monday.

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