Fund hitches ride into China

Germany's DJE Investment is buying shares in HK real estate giants

A German fund has been accumulating shares in Hong Kong companies which have been increasing their exposure to the mainland's fast-growing property market.

DJE Investment, controlled by Dr Jens Ehrhardt Kapital, has formed the US$170 million Lux Topic Pacific fund to invest in Hong Kong stocks.

Dr Jens Ehrhardt Kapital is controlled by Dr Jens Alfred Karl Ehrhardt, which manages assets worth Euro6 billion ($57.5 billion).

Lutz Kihm, an adviser for the Lux Topic Pacific fund, said the company had accumulated shares in Kerry Properties, Hang Lung Properties and Hon Kwok Land, which together accounted for 13 per cent of the fund in value.

These companies are heavily invested in the mainland property market.

DJE Investment controls about a 5 per cent stake in property management firm Synergis Holdings, which is expanding its property management business in China.

Mr Kihm said the mainland market had high growth potential as there was an increasing number of affluent people in the country, where the economy grew 10.2 per cent in the first quarter.

Unlike in other countries, which had a wide variety of investment tools such as bonds and stocks, Mr Kihm said there were not many tools for the wealthy to invest in China and property would be 'the best opportunity for people to accumulate wealth'.

Despite confidence in the China property market, Mr Kihm said the fund invested in Hong Kong-listed companies rather than mainland- listed ones because of the risk of being sued.

'You cannot sue a company in China. I like companies having exposure to [the] China property market, but under Hong Kong management,' he said, adding that this would offer investors better protection.

Mr Kihm said the companies in which the fund was invested had projects in prime locations in key cities such as Shanghai, Guangzhou and Shenzhen.

Commenting on the recent rush by foreign funds to directly invest in Shanghai's real estate market, Mr Kihm said his fund preferred to invest in property stocks managed by property experts.

He said property companies such as Hang Lung had been moving to second-tier cities after building a strong foothold in Shanghai. He expected that these market leaders would be the first ones to benefit from the improving secondary market.

'I assume ING and Morgan Stanley will get a decent yield, but leaders in the industry will get [a] better yield,' he said.