JF Asset sees 10 pct China share rise

By Jeffrey Hodgson

HONG KONG (Reuters) - Mainland Chinese companies traded in Hong Kong are likely to rise a further 10 percent by year-end, buoyed by rising profits and China's booming growth, JF Asset Management's top China fund manager said on Tuesday.

While there is a risk of a near-term correction, it is more likely that the market will enter a consolidation phase before climbing to new highs, said Howard Wang, head of the firm's Greater China team.

"When you look at the broad picture, number one, this is one of the few places in the world in which the question is, 'How much economic growth do you want?' Most places in the world, as we know, are struggling with growth and credit conditions," he told the Reuters China Century Summit in Hong Kong.

"Almost uniformly, (Chinese) companies have either been pre-announcing earnings surprises, or reporting earnings surprises on the upside, so from a corporate standpoint, I think we're in pretty good shape."

He said an additional 10 percent gain was likely for the China Enterprises index of H shares .HSCE and the MSCI China index .MSCICN, which have both risen more than 40 percent so far this year.

The benchmark Shanghai stock index .SSEC, which has doubled in value since the end of 2006, is likely to rise even more than 10 percent before year-end as long as the government is comfortable with the fundamentals of the market, he said.

Wang, who was previously with Goldman Sachs and Morgan Stanley, said concerns about high valuations in the H-share market may be overdone.

While there are estimates that the H-share market trades at 20 to 30 times 2008 earnings, analysts are having trouble keeping up with and incorporating earnings upgrades, he said.

"We believe the multiples are lower than what the market thinks they are. And if you scratch an analyst, especially an analyst who's bullish, I think they'll admit that there's a high probability that their numbers can be surpassed," he said.

"We're not at the stage yet in which we need to be careful about earnings downgrades. I think once we hit that stage, that's when one wants to be less bullish about this market."

Wang is co-manager of the $744.6 million JF Greater China fund 60003392HK.LPLIPPER.

The fund returned 28.4 percent in the first seven months of the year, beating its benchmark, the MSCI Golden Dragon index .MIGD00000PUS, which returned 21 percent with dividends reinvested over the same period.

As of September 3, that outperformance had widened to 12.41 percent on a total return basis.

CONSUMER, INFLATION PLAYS BEST

The U.S.-born fund manager said investors should be overweight China-focused H shares and red chips listed internationally, as well as mainland-listed A shares, and underweight Hong Kong and Taiwan companies.  Continued...