China’s stocks will extend this year’s bear market losses and investors should avoid bank shares as loan growth slows and the need to raise additional capital increases, according to Pacific Sun Investment Management Ltd.
“I’m still bearish on A shares,” Andy Mantel, founder and managing director of Pacific Sun, said in a phone interview from Hong Kong. “I still see more downside the rest of this year. I would avoid the banks.”
China’s four biggest publicly traded lenders are seeking to raise about $27 billion after they extended record loans last year to support a government-led stimulus plan. Financial stocks in the CSI 300 Index have dropped 23 percent this year, dragging down the broader market, which has lost 20 percent. China’s stocks rallied today on speculation the government will abstain from further measures to cool the property market given Europe’s debt crisis. The CSI 300 rose 3.8 percent today and the Shanghai Composite Index added 3.5 percent.
Mantel’s Mantou Fund, a long/short fund that invests mainly in Greater China equities, gained 51 percent last year, beating 89 percent of rivals, according to data compiled by Bloomberg. Marc Faber, the publisher of the publisher of the Gloom, Boom & Doom report, is the chairman of the fund.
China Construction Bank Corp., Industrial & Commercial Bank of China Ltd., Bank of China Ltd. and Bank of Communications Ltd. announced fundraising plans after a credit boom drained capital. Chinese lenders doled out an unprecedented 9.59 trillion yuan ($1.4 trillion) in 2009, helping fuel a recovery in the world’s third-largest economy.
“I am concerned about the blind lending that has been going on in the last 18 months,” Mantel said. “All this fundraising is scary.”
The Shanghai Composite entered a bear market two weeks ago after falling 20 percent from a November peak on concern the government will continue to tighten monetary policy to contain inflation and avert asset bubbles.
“I think a good entry point for stocks may be in the next few months but A shares may be later on,” he said.
Mantel said he likes small and mid-cap stocks that trade around 4 times earnings which are growing between 30 percent and 40 percent a year with a dividend yield. He recommended Hong Kong-based Ju Teng International Holdings Ltd., a maker of notebook-computer casings which is listed in the city and in Taiwan. The Hong Kong shares trade at 6.69 times estimated profit, according to data compiled by Bloomberg.
Another one of his holdings is Puda Coal Inc., a coal washer-turned-integrated producer which received permission from the provincial government in Shaanxi, where the company is based, to consolidate the industry. The shares trade in New York.