June 19, 2013 9:50 am

China fund to invest in US property

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A top Chinese fund manager will launch the country’s first fund tracking a US real estate index to cater to Chinese investors who think the US property market will outperform their own.

GF Fund Management, China’s sixth-biggest fund company by assets under management, said it would next month offer a fund that aims to match the performance of the MSCI US real estate investment trust index.

US property has in recent years become a top investment choice for wealthy Chinese. Real estate developers from China have also started looking to the US, making several big acquisitions this year.

But for smaller Chinese investors, options have been more limited. GF Fund said its new product, which will be available in units as small as Rmb1,000 ($163), would bring US property to a much wider Chinese investor base.

“Ordinary Chinese people can see that US real estate has more investment potential than Chinese real estate,” said David Qiu, global investment portfolio manager for GF Fund.

“The US economy and property are still recovering,” he said. “Relatively speaking, Chinese property is more of a bubble.”

Regulations in China still bar the trading of real estate investment trusts, so the fund will track the MSCI index rather than actually function like a reit. GF Fund did not say how much money it was hoping to raise.

The fund will be available in China as part of the country’s qualified domestic institutional investor programme, which grants quotas to Chinese investors to legally get around the country’s capital controls.

QDII products have suffered from a lack of demand in the past because many were launched before the global financial crisis and their subsequent plunge damaged their reputation for Chinese investors.

But over the past three years, overseas markets have outperformed Chinese markets by a big margin and QDII offerings have started to pick up.

Lion Fund Management in 2011 launched China’s first fund for investing in global Reits. Penghua Fund, another leading Chinese money manager, launched a US real estate fund in late 2011 that invests in specific stocks.

The Penghua Fund product has gained nearly 11 per cent since its inception. During that same time, the Shanghai Composite index, China’s main stock index, has fallen more than 10 per cent.

Mr Qiu said GF Fund would look at launching similar Reit-backed products for Europe if the US fund is successful.

The fund launches at a tricky time for the sector globally. Reits and other income-paying equity products enjoyed a stellar run over the past 18 months as international investors sought out higher yields.

But since the Federal Reserve raised the prospect of a tapering of its asset purchases in May, yield and dividend-paying stocks have suffered a reversal of fortunes. The global Dow Jones Reit index has fallen 10 per cent in the past month, while in Hong Kong at least one sizeable new listing has been pulled.

However, according to bankers, many Asian investors have turned their attention to the US housing market instead, targeting listed homebuilders and property-related exchange traded funds.

Despite obstacles to getting money out of their country, Chinese nationals are already the second-biggest foreign buyers of US property, after Canadians. Chinese accounted for 11 per cent of foreign purchases of US property last year, up from 5 per cent in 2007, according to the US national association of realtors.

Additional reporting by Josh Noble in Hong Kong

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