Gung ho Kenneth Fisher placing big bets on this emerging market

Billionaire Kenneth Fisher, who bought Chinese shares as they rallied from a 2-1/2 year low in the fourth quarter, said the stocks will beat global equities as the government takes further steps to boost growth.

China will loosen monetary policy for another 12 to 18 months after announcing the first interest-rate cut since 2008 yesterday, Fisher, chief executive officer of Fisher Investments, said in a phone interview yesterday. China represents about 6 percent of the Woodside, California-based firm’s holdings, a bigger proportion than in benchmark indexes, Fisher said. Morgan Stanley said it’s now “fully invested’ in its emerging-market asset allocation after the rate cut.

”We’re overweight China and optimistic on China relative to both emerging markets and the world as a whole,” said Fisher, who is ranked number 263 on the Forbes list of the 400 richest Americans. “We see this as part of a broader Chinese effort to stimulate, loosen and deregulate.”

The Bloomberg China-US Equity Index of the most- traded Chinese companies in the U.S. rose 0.5 percent on Friday to 90.62 in New York for a three-day advance of 4.5 percent, the biggest since March 9.

In Shanghai, Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. , the nation’s biggest lenders, fell at least 0.7 percent on concern the central bank’s rate reduction will hurt bank earnings. Lenders’ profit may drop by more than 10 percent, according to Hao Hong, chief China strategist at BoCom International Holdings Co.

Chinese ETF

The iShares FTSE China 25 Index Fund, the biggest U.S.- listed China exchange-traded fund, advanced 0.9 percent on Friday to $33.77 in New York trading. Fisher Investments, which began buying shares of the China ETF in the fourth quarter, was the biggest holder as of March 31, with a stake valued at about $577 million, according to regulatory filings compiled by Bloomberg. The ETF invests in 25 of the nation’s largest companies, including China Mobile Ltd. and Bank of China Ltd.

The People’s Bank of China lowered the one-year lending rate by a quarter of a percentage point to 6.31 percent and encouraged banks to lend 20 percent below the benchmark. The central bank last reduced rates in late 2008, when the government unveiled a 4 trillion yuan ($586 billion) stimulus package to counter the effects of the global financial crisis. Interest rates have been unchanged since an increase in July 2011.

“It’s a positive surprise to the market including Chinese stocks and will typically lead to a short and sharp rally,” Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees more than $1.6 billion, said by phone. “This is just the beginning. There’ll be further moves to follow later this year.”

Apple’s Plans

Apple Inc. plans to add Baidu’s search engine on iPhones in China, part of a push to broaden its services and user base in the world’s most-populous nation, according to two people with knowledge of the matter. The agreement to add Baidu to the lineup of Web tools on the iPhone could be announced as early as next week, said one of the people, who asked not to be identified because the plans are private.

China’s economy expanded 8.1 percent in the first three months this year, the slowest pace in 11 quarters. The rate cut, following three reductions to banks’ reserve-requirement ratios since November, came two days before the government is due to report inflation, investment and output figures for May.

China’s fixed-asset investment probably expanded at the slowest pace in a decade in May, gains in consumer prices matched a two-year low and industrial output grew less than 10 percent for a second month, Bloomberg economist surveys show before the figures due to be released tomorrow.

Index Gains

The rate cut “may indicate that there is a bigger drop in the consumer prices index,” Louis Wong, a director at Phillip Securities HK Ltd., said by phone. “It goes to show that cutting the reserve-requirement ratio may not be sufficient to stimulate the economy, so now they have resorted to cutting interest rates.”

The Shanghai Composite surged 46 percent in the 12 months after China began cutting interest rates in 2008, the biggest rally among 96 world equity indexes tracked by Bloomberg. Indonesia’s Jakarta Composite Index, Turkey’s ISE National 100 Index and Brazil’s Bovespa Index each posted gains of more than 22 percent in the year after China’s interest-rate announcement in September 2008, the biggest increases among 21 emerging- market equity gauges after the Shanghai Composite, according to data compiled by Bloomberg.

‘Fully Invested’

Brazil, China and India would benefit the most from China’s rate cut, according to Sam Mahtani, who oversees about $5 billion as director of emerging markets at F&C Asset Management Plc (FCAM) in London. “It’s going to be very positive for emerging- markets and could create a short-term rally in markets for a few days. Investors will shift focus later this month to Greek elections and the situation in Spain,” he said yesterday by phone.

Morgan Stanley’s move to “fully invested’ in its emerging- markets asset allocation model means zero cash and a 10 percent overweight in equities, Jonathan Garner, equity strategist for Asian and emerging markets, wrote in a report today.

China interest-rate cuts are ”likely a significant positive catalyst” for emerging-market equities, Garner said.
–Bloomberg News–