Lion Fund Says Buy China Stocks That Tap Urbanization

Lion Fund Management Co., the $7.5 billion money manager that led Chinese investors into gold exchange-traded products, said the best returns in 2013 will come from stocks that tap the migration of farmers to the city.

Demand for building materials, home appliances and property will benefit as Li Keqiang, set to become China’s new premier in March, promotes urbanization to drive economic growth that’s showing signs of accelerating after a two-year slowdown, Lion’s Chief Executive Officer, Ao Chengwen, said in an interview with Bloomberg News on Jan. 23.

“The improving Chinese economy this year is a game changer,” Ao, 45, said at Lion Fund’s Beijing headquarters. “Companies that can benefit from urbanization look most appealing and primed for a rally.”

China’s benchmark Shanghai Composite Index has advanced 13 percent since Nov. 21, when Li championed urban development as a path to sustainable economic expansion. The country’s gross domestic product rose 7.9 percent in the three months through December, ending seven quarters of slowing growth in the world’s most populous nation.

More than 21 million people -- roughly equivalent to the population of Australia -- left their rural homes for jobs in the city in 2012, according to China’s National Bureau of Statistics. Providing housing and consumer goods for these workers is a huge investment opportunity, said Ao, who declined to identify specific stocks Lion Funds may purchase.

Market Leader

The company employs 200 people across its branches in Beijing, Shanghai and Shenzhen. It will boost staff by about 10 percent this year as the economy grows, Ao said. He aims to increase assets under management to $10 billion in 2013.

The fund manager was the first in China to raise money for investments in gold exchange-traded products overseas in early 2011. Harvest Fund Management Co., Bosera Asset Management Co., China Universal Asset Management Co. and others followed.

Lion Fund may launch products this year that are linked to the Standard & Poor’s 500 Index, because it offers attractive liquidity and returns, Ao said.

Regulators have signaled they will relax some restrictions to increase foreign access to the country’s capital markets and to allow more Chinese investment in overseas markets, he said.

The People’s Bank of China will prepare a trial program allowing citizens to invest in overseas capital markets, it said on Jan. 11. It has listed the second phase of its qualified domestic individual investor program, or QDII2, as a priority this year.

Offshore Yuan

Lion Fund opened a Hong Kong office last month with about 10 staff, he said. It will tap offshore yuan assets to reinvest in the Chinese market, according to Ao, who said he expects China to increase quotas for money that can return to the country from 270 billion yuan ($43.4 billion).

About 70 percent of the money manager’s current assets are allocated in equities, 20 percent in fixed-income products and the rest in the derivatives products for gold, oil and gas assets, and real estate investment trusts, Ao said.

“Chinese citizens have about 20 trillion yuan in bank deposits, which shows that a strong demand for fixed-income products will always be there,” Ao said.

Gold ETPs

The company has investments in overseas gold ETPs valued at about $300 million, down from almost $500 million at the beginning of 2011, when it started, said Ao.

“The reduction in size of the investments was mainly because investors cashed out when bullion prices reached a record in 2011,” he said. “With gold prices stabilizing, we now see more investor interest, especially through term deposits on a monthly basis.”

Investors hold 2,618 metric tons of gold in exchange-traded products after bullion’s longest bull market in at least nine decades. Gold capped a 12th annual advance in 2012 and rose to a record $1,921.15 an ounce in 2011. Gold gained 0.2 percent today to trade at $1,671.28 at 3:50 p.m. Beijing time.

“We still have a bullish view on gold,” Ao said. “Gold will shine with monetary easing by central banks around the world.”