Value Partners stock picker Cheah Cheng Hye bullish on China

PUBLISHED : Wednesday, 06 August, 2014, 2:43pm
UPDATED : Thursday, 07 August, 2014, 2:37am

Value Partners' Cheah Cheng Hye is more bullish on mainland stocks than at any time since the global financial crisis, thanks to Beijing's anti-graft drive.

The chairman of the Hong Kong-based fund manager, which runs the best-performing China equity fund of the past five years, predicts a further gain of about 15 per cent for the Shanghai Composite Index by the end of the year. While the anti-corruption measures may be a short-term drag on growth, they will make state-owned enterprises more efficient and help curb excessive debt, he said.

The call by Cheah, dubbed the Warren Buffett of Asia, pits him against Tom DeMark, the developer of market-timing indicators who forecast on Monday the rally may end in days.

"We are seeing that the anti-corruption campaign is for real," said Cheah, whose US$547 million Value Partners China Greenchip Fund returned an annualised 13 per cent during the past five years. "This is giving a lot of encouragement to investors."

The measures will improve the quality of growth and bolster investor confidence, Cheah said. Gross domestic product will expand 7.4 per cent this year, according to the median forecast in an analyst poll, compared with 7.7 per cent in 2013.

"The kind of growth you get from corruption is what we call useless growth," said Cheah. "Investors are willing to accept a lower growth rate in China. Maybe 6.5 per cent growth is OK."

The mainland also needs to improve corporate governance if it wants to lure back investors after a 60 per cent slump for the Shanghai index since the start of 2008, Cheah said. The gauge has gained 4.9 per cent this year after rebounding 11 per cent from its January low. The H-share index entered a bull market on July 28 with a 20 per cent rally from its March low.

"The market has bottomed out," Cheah said. "We're beginning to see … a recovery in June and July. The strong performance may only be the beginning."

Restoring trust in the equities market is crucial before the start of the through train stock scheme that will enable the cross-trading of shares in Hong Kong and Shanghai, Cheah said.

In contrast to Cheah's optimism, DeMark said the Shanghai benchmark would probably fall below this year's intraday low of 1,974.38 points in six months.