Billionaire Ken Fisher, who bought Chinese stocks as they rallied from a 21/2 year low in the fourth quarter, said that such shares will beat global equities as the government takes further steps to boost growth.
China, which on June 10 announced the first interest rate cut since 2008, will loosen monetary policy for another 12 to 18 months, said Mr. Fisher, chief executive of Fisher Investments Inc.
China represents about 6% of the firm's holdings, a bigger proportion than in benchmark indexes, he said.
Morgan Stanley said that it is “fully invested” in its emerging-markets 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 Mr. Fisher, who is ranked No. 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-U.S. Equity Index of the most-traded Chinese companies in the U.S. rose 0.5% on June 8 to 90.62, for a three-day advance of 4.5%, the biggest since March 9.
Shares of Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., the nation's biggest lenders, fell in Shanghai on concern that the central bank's rate reduction will hurt bank earnings. Lenders' profit may drop by more than 10%, according to Hao Hong, chief China strategist at BoCom International Holdings Co.
CHINESE ETF
Fisher Investments, which began buying shares of the iShares FTSE China 25 Index Fund in the fourth quarter, was the biggest holder as of March 31, with a stake in the exchange-traded fund 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% and encouraged banks to lend at 20% 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 last July.
“It's a positive surprise to the market including Chinese stocks and will typically lead to a short and sharp rally,” said Michael Shaoul, chairman of Marketfield Asset Management LLC, which oversees more than $1.6 billion.
“This is just the beginning,” he said. “There'll be further moves to follow later this year.”
Apple Inc. plans to add Baidu Inc.'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 sources with knowledge of the matter. The agreement to add Baidu to the lineup of web tools on the iPhone could be announced soon, said one of the sources, who asked not to be identified because the plans are private.
China's economy expanded 8.1% in the first three months this year, the slowest pace in 11 quarters. The rate cut followed three reductions to banks' reserve-requirement ratios since November.INDEX GAINS
The rate cut “may indicate that there is a bigger drop in the consumer price index,” said Louis Wong, a director at Phillip Securities HK Ltd. “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 Index surged 46% in the 12-month period 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% in the year after China's interest rate announcement in September 2008, the biggest increases among 21 emerging-markets equity gauges after the Shanghai Composite, according to data compiled by Bloomberg.
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.
“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,” Mr. Mahtani said.
Morgan Stanley's move to “fully invested” in its emerging-markets asset allocation model means zero cash and a 10% overweight in equities, Jonathan Garner, equity strategist for Asian and emerging markets, wrote in a report.
China's interest rate cuts are “likely a significant positive catalyst” for emerging-markets equities, he said.
