Bosera Favors China Building Material, Auto Shares

By Chua Kong Ho

Nov. 14 (Bloomberg) -- Bosera Asset Management Co., China’s second-biggest fund management company, favors shares of construction-material producers on hopes they will benefit from the government’s $586 billion economic stimulus plan.

The Shenzhen-based company also likes automakers on expectation demand will pick up as growth in China’s economy, the world’s fourth-largest, accelerates, said Charlie Kimball, chief research consultant at Bosera, which oversees the equivalent of $34 billion. Port operators, shipbuilders and other export-dependent companies may lag behind due to the poor outlook for the U.S. economy, he said.

China announced the 4 trillion yuan spending plan on Nov. 9, after slowing exports and investment triggered a slump in stocks and trimmed third-quarter economic growth to the slowest pace in five years. The benchmark CSI 300 Index, Asia’s worst performing, has dropped 67 percent from its peak on Oct. 16, 2007, reducing its value by as much as 78 percent.

“I feel things are very undervalued,” Kimball, 63, said in an interview in Shanghai today. “I was surprised by how much the market has declined and overshot on the downside. We’re in a mode of fear now.” He declined to say whether Bosera is buying stocks or comment on individual companies.

The CSI 300 now trades at 13.4 times reported earnings, compared to 19.6 times for the U.S. Standard & Poor’s 500 Index. Gross domestic product expanded 9 percent in the third quarter, the slowest pace in five years, while industrial production grew by the least in seven years last month, according to government statistics.

‘Clear Signal’

The announcement followed three interest-rate cuts in two months and the end of a tax on equity purchases.

The stimulus package sends a “clear signal” that the Chinese government will take the necessary steps, including more rate cuts and government spending, to avert a sharp slowdown in the economy, said Kimball, who was previously head of international investments at JPMorgan Asset Management’s Multi- Markets Funds Group.

The plan is “important not just for China but for the world because China is a big buyer of commodities and contributor to global growth,” he said.

The central authorities will provide 1.18 trillion yuan ($173 billion) to fund higher spending on railways, roads, healthcare and housing, Mu Hong, vice chairman of the nation’s top economic planning agency, said in Beijing today. The rest is expected to come from local authorities, companies and other sources, including overseas investors, he told a news briefing.

Faster Growth

Given the potential for China’s economic growth in coming years, the country’s stocks should trade at the long-term price- to-earnings ratios for U.S. shares of about 16.5 times, according to Kimball, who worked in Tokyo from 1987 to 1990 as head of investment research at Morgan Trust Bank.

“You must consider that China is likely to grow much faster than the U.S. for decades,” he said. “In the current environment, the risks are more in developed countries than in China.”

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net.