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[HONG KONG] Zhang Jintao is sticking with the bet that's made his stock fund China's top performer: Hong Kong equities.
Harvest Fund Management Co's fund has returned 13.4 per cent this year after putting 70 per cent of its stock holdings in the former British colony, where the local benchmark has jumped 9.3 per cent. With the market now near a 1 1/2-year high, Mr Zhang says the rally can continue as earnings improve and China's economy stabilises.
"The yuan is stable, the US has paused its rate hikes and the entire Chinese macro environment is better," Mr Zhang said in an interview on Tuesday. "There's more upside because earnings growth will be better than in 2016. Valuations will rise."
Chinese cash has been pouring into Hong Kong's stock market through links with mainland exchanges to take advantage of the city's cheaper shares while also hedging against yuan weakness. Mr Zhang's fund is a testimony of such red-hot demand: its assets have doubled to 2.7 billion yuan (S$556.4 million) this year alone, with inflows picking up over the past week amid a surge in interest from retail investors, he said.
The Harvest SH-HK-SZ Selected Equity fund is the top-performing active Chinese stock fund this year, according to data compiled by Bloomberg. The firm is planning a new fund that also invests in Hong Kong shares but with more flexibility across asset classes, Zhang said.
The Hang Seng Index - which includes Hong Kong and mainland Chinese companies -slipped on Friday after a technical indicator signaled the shares are overbought earlier this week. Mainland stocks now trade at an 18 per cent premium over their Hong Kong listings, compared with 26 per cent six months ago.
The fundamentals of Chinese and Hong Kong stocks have brightened. The nation's January economic data from new credit to exports beat estimates, and the dollar's pullback has fueled a rebound in the Chinese currency, removing a source of anxiety for investors. Earnings per share on the Hang Seng are projected to climb 14 per cent this year, data compiled by Bloomberg show. Rising producer prices and capacity reduction will boost profits, Zhang said.
For similar reasons, the Shanghai benchmark, which has risen 4.6 per cent so far this year, will gain in 2017, Mr Zhang predicted. Policy makers shifted their focus to curbing bubble risks in the second half of last year, raising rates on liquidity tools incrementally and adding restrictions on home buying.
"Money in the system is less loose, but it's still ample," he said. "So if the bond market is doing badly, property buying is curbed, then the stock market will be the target for investments."