Seek Stock Havens Amid China's Slump, Says BNP Fund Venture

By Zhang Shidong and Chua Kong Ho

July 16 (Bloomberg) -- China's resource and consumer-related stocks offer investment havens amid a slowing economy and rising household prices, said BNP Paribas SA's Chinese fund-management venture.

Yunnan Yuntianhua Co. and Qinghai Salt Lake Potash Co. were among the top holdings of Xu Shuang, a fund manager at Shanghai- based SYWG BNP Paribas Asset Management Co., according to her fund's quarterly portfolio report for the period ended March 31.

``We have been overweight on resource and consumer-related stocks this year,'' Xu said in an interview yesterday.

Chinese stocks have declined on speculation a glut of shares emerging from lock-ups following a reform program will overwhelm demand, and measures by the government to combat the fastest inflation in more than a decade will erode profit. The economy probably slowed for a fourth-straight quarter as exports cooled, according to a Bloomberg News survey of economists.

The CSI 300 Index, which tracks shares traded in Shanghai and Shenzhen, has tumbled 51 percent since its peak in October, the worst performance among the world's 20 biggest equity markets. The benchmark index is valued at 21 times reported earnings, near the lowest in two years, according to Bloomberg data.

Valuations have fallen to levels where investment opportunities are emerging, said Xu, 29. She held more resource and consumer-related stocks than are represented by the benchmark and cut the proportion of financial shares in the SYWG BNP Paribas Shengli Selected Securities Investment Fund. The 1.8 billion-yuan ($264 million) fund has lost 29 percent this year, compared with a 44 percent slump in the CSI 300 Index.

Top Holdings

Yuntianhua, a fertilizer producer based in China's southern Yunnan province, gained 26 percent this year before trading was suspended on March 21 pending a business revamp.

Qinghai Salt Lake, a maker of potassium chloride products, added 13 percent before a trading halt that started on June 25. Its shares could benefit if the government relaxes control over fertilizer prices, said Xu.

``There are still gaps between domestic and international prices for energy and other items,'' she said. ``The increase in refined-oil prices indicates the government may allow prices of other items to rise.''

China raised gasoline prices by 17 percent and diesel prices by 18 percent last month to counter the rising cost of crude oil for domestic refiners. Crude oil reached a record $147.27 a barrel on July 11.

Set up in 2004, SYWG BNP Paribas now has five open-end funds under management with 20 billion yuan in total assets, according to its Web site. The asset management unit of BNP Paribas has a one-third stake in the venture and Shenyin & Wanguo Securities Co. owns the remainder.

To contact the reporters on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; Chua Kong Ho in Shanghai at Kchua6@bloomberg.net