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Henderson China manager: I'm backing SOE reforms theme

Henderson China manager: I'm backing SOE reforms theme

China’s state owned enterprise reforms and consumption are the two main themes Caroline Maurer is backing to boost the performance of the fund she manages, the Henderson HF China fund.

‘Over the past six months, we’ve been increasing investment in SOEs because of the growing potential from the reforms process,’ the Citywire + rated manager told Citywire Asia.

‘These reforms can help corporate earnings and cash flows going forward.’

The China fund has lagged the Citywire benchmark MSCI Golden Dragon TR over the past three years, although the gap narrowed over the past 12 months.

To illustrate her interest in SOEs, Maurer said that in July, she picked up a 2.5% stake in China Datang Corporation, a large-scale power generation company.

Other SOE stocks that Maurer has in her portfolio are PetroChina (5.3%) and Sinopec (4.3%).

‘Both of these stocks are likely to do well because of the ongoing reforms process,’ she said.

However, she added that she continues to adopt a bottom-up investment approach. ‘We’re looking at earnings and cash flows above everything else,’ she said.

‘We are not changing our investment strategy; however, there will be greater focus on certain themes this year.’

Apart from SOEs, consumption and urbanisation are other big investment themes for Maurer.

‘Consumption will continue to be long-term theme for China, despite being negatively affected by the anti-corruption campaign,’ she noted.

She said that over the next six to 12 months, she was considering buying into consumer discretionary segments affected by the anti-corruption drive, such as high-end luxury spending.

‘These sectors have been lagging in performance this year,’ she said, adding that valuations have been falling.

However, she added that she was in no hurry to buy since valuations have been low for some time now.

'But I will continue to keep a close eye on consumer discretionary-related stocks, especially high-end consumption stocks,' said Maurer.

Hit by gaming

Maurer said the fund's performance this year had been affected by the decline in Macau gaming stocks, which have been hurt by China’s anti-corruption drive.

‘We were overweight on Macau gaming stocks at the start of the year and those stocks are nearly 20% down now,’ she pointed out.

Other stocks like Great Wall Motors also dragged fund performance, she said. ‘The performance was affected more by specific stocks rather than by sectors as a whole,’ she added.

Maurer said she was wouldn’t describe herself as bullish on the current equities outlook, but noted that ‘there are enough changes for investors to start feeling more confident over the next six to 12 months about the sustainability of the Chinese economy and future growth drivers’.

In the 36 months until August 31, 2014, the Henderson HF China fund has posted returns of 13.01%  while the MSCI Golden Dragon TR has risen 30.3% in USD terms. However in the past year, the China fund has risen 17.9% against the benchmark's 20.42% gain.

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