INTERVIEW-Hedge fund Greenwoods bets on HK-listed China shrs

Published: 17 Jul 2009 01:34:39 PST

* Greenwoods sees market returning to 2006-07 bull run

* Short on China property developers after recent rally

* To launch new multi-strategy fund this year

HONG KONG, July 17 - Chinese stocks listed in the mainland are overvalued after this year's stellar rally, but there is further upside for Hong Kong-listed China counters, with 30 to 40 percent of stocks still looking cheap, according to hedge fund Greenwoods Asset Management.

The firm, which manages one of this year's top-performing Chinese hedge funds, said it was shorting Chinese property developer stocks, which have run ahead of the market on Beijing's stimulus measures.

"2010 will be even more upbeat than this year, we see a return to the bull market days of 2006-07, but it will also be a lot more choppy," Joseph Zeng, a Hong Kong-based executive director with Greenwoods, said in an interview with Reuters on Friday.

Greenwood bets on smaller blue chips in Hong Kong, such as internet company Tencent.

With China's consumer price deflation easing and Beijing promising to maintain its easy monetary policies, Greenwoods favours consumption stocks as well as resources counters.

The fund is also invested in smaller financial stocks, including China Insurance International, while steering clear of market heavyweights such as ICBC.

The Chinese pure play hedge fund has $350 million in assets under management, sharply lower than the $1 billion it was managing in 2007 following lock ups and redemptions that rocked the industry last year.

Greenwoods' funds have racked up a 104 percent return this year, while its flagship Golden China Fund was the best performing Asian hedge fund in June with a 28.7 percent return, according to Zeng.

The $140 million fund has risen 97.3 percent to June, compared with a 39 percent increase on the Hang Seng China Enterprises Index.

The strong progress report also highlights the volatility of the Asian markets, and shows how hedge funds -- meant to generate steady returns on long and short bets -- are prone to riding out Asian equity market waves.

"Its easier to make more home runs when you are net long than net short on China," said Zeng.

Greenwoods' funds have a 68 percent net long position spread across Chinese stocks listed in Hong Kong, mainland China as well as U.S.-listed American Depository Receipts.

The Shanghai-based fund manager is looking to launch a new multi-strategy fund this year adding to its four existing funds, two of which are targeted exclusively at mainland Chinese investors.

Greenwoods' yuan-denominated funds invest in Shanghai and Shenzhen-listed A-shares through brokers who are permitted to trade in the domestic Chinese market through their Qualified Foreign Financial Institutions (QFII) quotas.