Mizuho Asset Management Co. (8411), a unit of Japan’s third-biggest lender, is opening a China fund, betting new leaders in the world’s No. 2 economy will boost growth and quell a territorial dispute that’s prompted other banks to cancel planned funds.
The MHAM China Growth Focus Fund, which starts Nov. 30, will focus on industries that may benefit from railway, health-care and financial reforms, Masahiko Ejiri, the fund’s manager, said in an interview. Possible target stocks include Citic Securities Co. (6030), Sinopharm Group Co. and other drug firms, Ejiri said. Consumer and Internet companies including Tencent Holdings Ltd. and U.S.-listed Baidu Inc. (BIDU) also entice, he said.
The Communist Party started its 18th congress in Beijing yesterday to choose new leaders, a decision that will shape the nation’s economic and financial policies for the next decade. Mizuho is bucking a trend that has seen Japanese companies such as United Investments Co., Sumitomo Mitsui Asset Management Co. and SBI Asset Management Co. cancel China funds as a dispute over an island chain soured relations between the nations.
“Fund performance isn’t really impacted by the tension between Japan and China,” Ejiri said. “Our concern is whether we can raise money because of Japanese investor sentiment towards China. When demand for A-share funds comes back, there won’t be many competitors providing the opportunity to investors.”
China’s Communist Party delegates are meeting over several days to choose a fifth generation of leaders since taking power in 1949. Vice President Xi Jinping is expected to replace Hu Jintao as general secretary of the 82 million-member party. Vice Premier Li Keqiang is expected to take Premier Wen Jiabao’s spot on the top Politburo Standing Committee, setting him up to assume Wen’s job next March.
China’s new leaders are poised to inherit the weakest economic expansion since 1999, with growth of 7.7 percent this year, according to the median estimate of 45 analysts in a Bloomberg News survey.
Mizuho’s fund will include Chinese companies listed in the mainland, Hong Kong and other venues, as well as exchange-traded funds denominated in yuan and Hong Kong dollars, Ejiri said. Mizuho Asset oversees about $45 billion, including Hong Kong-listed equities.
Airlines and gold-related companies may also be added as a short-term strategy betting on global liquidity, Ejiri said. Hong Kong’s market has rallied the past two months as money poured into the city following so-called quantitative easing by global central banks including the U.S., Europe and Japan.
Ejiri manages other funds including the MHAM Growing Asia Stock Fund, which has beaten 69 percent of rivals year-to-date, and MHAM Hokuto High Dividend Global Stock Open, which has outperformed 70 percent of its peers, according to data compiled by Bloomberg.
Tensions between Asia’s two-biggest economies escalated in September after Japan said it would nationalize islands claimed by both nations. Nationwide protests in China led to attacks on Japanese stores, restaurants and car dealerships.
United Investments canceled its China A-share fund that was due to start Oct. 1 because the dispute exposed risks investing in the nation, Chief Investment Officer Atsushi Inoue said. Sumitomo Mitsui Asset Management scrapped its China Dividend Yield Equity Fund 2012-10 fund due to the “recent condition of the market and Japan-China relations,” according to Yasuko Kawase, from the company’s corporate strategy department. SBI Asset Management Co. also halted its yuan-denominated fund.
“China’s government will take a much more balanced approach toward Japan,” Ejiri said. “There are many more negatives than positives if China becomes more hostile. The government understands that. The new government will have a long-term horizon.”
Mizuho is following other international asset managers looking for opportunities in China, with Franklin Templeton Investments setting up its first fund targeting mostly mainland equities. China Universal Asset Management is seeking approval to start a renminbi-denominated qualified foreign institutional investor fund.
Traffic jams in major Chinese cities are getting worse, and the nation needs to improve its public transportation, Ejiri said. China plans to invest 2.3 trillion yuan ($365 billion) in railway construction in the five years through 2015, the Economic Information Daily reported on Oct. 9, without saying where it got the information.
Larger pharmaceutical companies will benefit from demand for higher-quality and more affordable medication as well as the need for more clinics and hospitals in rural areas, Ejiri said. Lower prices may hurt drugmakers in the short term, though stronger players will win out as the government increasingly relies on larger, better-managed companies, he said.
Measures of health care, consumer staples and financial companies had the three biggest gains this year among the 10 industry groups in the CSI 300 Index, which includes 300 A-share stocks listed on the Shanghai or Shenzhen bourses.
The Shanghai Composite Index lost 5.8 percent this year through yesterday, while the Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong rose 5.9 percent as money poured in to the only venue in China where foreigners can freely buy and sell shares of the country’s biggest companies.
“If China wants to have growth in the next 10 years it needs to have reforms,” said Ejiri. “They understand that. They will push harder.”
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