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‘Liquidity to return to China this year’ says Richland Capital’s CIO, Au

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Chinese property stocks will continue to be a key focus for the Richland Emerging Opportunities Fund according to Alex Au, CIO of Hong Kong-based Richland

Chinese property stocks will continue to be a key focus for the Richland Emerging Opportunities Fund according to Alex Au, CIO of Hong Kong-based Richland Capital Management Ltd. The fund, which employs a Greater China equity l/s strategy, ended the year down -2.5 per cent Au told Hedgeweek via phone interview, citing policy overhang in the China markets. “We focus on large cap companies and these didn’t really perform compared to small caps in 2010,” said Au. “We were too early to bottom fish Chinese property stocks, which underperformed throughout the year due to the government crackdown on the property bubble.” Nevertheless, with the mainland expected to build 10million new units of social housing in 2011, Au remains bullish: “We’re still focused on property because valuations are cheap, about 40 per cent discount to NAV. The market will trade sideways this year because the government will impose measures if property stock prices rally so our portfolio will be long a few property stocks which are nationwide.” Au said that cement stocks, mainly those listed in Hong Kong, would also be part of the fund’s portfolio.

Hong Kong’s office and commercial rental sector will be another key focus for Au and his team this year, in particular shopping mall rentals and office rentals. “With the RMB strengthening Chinese people are crossing the border to shop,” said Au. “Also, Hong Kong office space will be limited the next two to three years. Demand is strong from Chinese companies setting up in the city after launching IPOs and mainland China securities houses. Sun Hung Kai is one stock we’re looking at.” Au confirmed that he was also bullish on upstream resource stocks including oil, gold and metal mining. “We also like copper,” said Au. With respect to Taiwan, Au believes the tourism and IT sectors will be important in 2011. Target returns for the fund will be 30 per cent to 40 per cent, with 15 per cent volatility. “We think liquidity will return to the China market this year,” said Au. “Everyone was concerned about inflation in China through 2010 but this is likely to cross over to countries like Thailand and Korea, which will underperform in my view.”
 

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