Citywire AAA-rated Jian Shi Cortesi is tapping the housing market in China as she sees continuing demand from all sectors of Chinese society.
Speaking to Citywire Selector, Cortesi, who runs the GAM Multistock – China Evolution Eq fund, said property prices had increased significantly over the past year in the domestic Chinese market.
Cortesi said infrastructure such as public transport and schools was transforming areas that had previously been described as ghost towns.
‘I see a huge desire from normal Chinese people to have bigger and better homes, or to have one more bedroom for their children. Young people, middle-aged and older people all want to live in newer, better and more spacious apartments,’ Cortesi said.
‘At the same time, property developers are trading at very low valuations. Some of them trade at 60% discount to the net asset value and at 5x P/E. With demand still quite strong and valuations quite cheap, it is a good combination to selectively play some of these companies.’
Real estate currently makes up 6.1% of the fund, which compares with 29.5% invested in IT. However, Cortesi said there is some overlap between the sectors.
‘I also hold a real estate company which own warehouses. These are used by the internet companies for storing products, so it is an indirect play on the online shopping trend,’ she said.
State owned enterprises (SOEs) have benefitted from a fall in the raw materials sector and cost-cutting measures by the government, Cortesi said, while falling prices have attracted investor interest.
However, Cortesi is avoiding them, particularly in the energy and the raw materials sectors and she believes some investors could get caught out.
‘From time to time these industries get so cheap that they rebound. But in my experience the rebound doesn't last very long. Sometimes it lasts couple of months, sometimes nine months,’ Cortesi said.
‘If you get in at the right time and leave before the market falls, you could have a 20-30% upside, but then if you get in at the wrong time and don’t catch the rally, you can have a 20-30% downside. In my view you end up spending a lot of time, but the end benefit is not worth it.’
Over three years to the end of August 2017 the GAM Multistock – China Evolution Eq fund returned 48.04% in US dollar terms. This compares to a rise of 33.04% by its Citywire-assigned benchmark, the MSCI China TR USD, over the same time frame.