Schroder Investment Management Ltd. said it bought convertible bonds of China’s second-biggest electronics retailer last month, and added Asian semiconductor and computer-parts manufacturers as the region’s stocks rally.
The asset manager, which oversees $1 billion in Asian equity-linked notes, bought securities issued by Gome Electrical Appliances Holdings Ltd. (493) as Chinese policy makers took steps to boost home building, Singapore-based convertible analyst Dorian Carrell said in an interview. It also bought Hynix Semiconductor Inc. (000660) of South Korea, the world’s second-largest chipmaker, and Taiwanese companies Pegatron Corp. (4938) and Wistron Corp. (3231) in the past two months to profit from improving dynamic random access memory prices, he said.
“We like Gome’s exposure to the home-appliance market, which may be boosted by government housing programs,” he said yesterday. “Gome is also delivering operational and margin improvements. As for Hynix, it’s a strong turnaround candidate, with stabilization in DRAM prices the key catalyst.”
China aims to add 36 million units of affordable housing by 2015 to limit public discontent over property prices. Officials will increase support for construction of the homes and ensure that “loan demand from first-home families” is met, the People’s Bank of China said on its website Feb. 7. Convertible bonds, which give holders the safety of coupon payments and the option to convert them into shares to participate in stock gains, are benefiting from a surge in the MSCI Asia-Pacific Index (MXAPJ) of shares outside Japan, up 13.6 percent this year.
Scaling Back Singapore
China will sell 250 billion yuan of bonds on behalf of local governments this year, up 25 percent from 2011, the finance ministry said in a report to the National People’s Congress in Beijing today. The increase was required mainly for low-income housing and public-welfare projects, it said.
Gome’s 3 percent bond due September 2014 has gained 7.2 percent this year, according to data compiled by Bloomberg, pushing the yield to 2.44 percent from 4.96 percent. Hynix’s 2.65 percent note due May 2014 rose 3.9 percent this year as of Feb. 15, when it was last traded. Their stocks have risen 32 percent and 36 percent respectively in 2012.
The rally is being underpinned by signs the U.S. economy is recovering, with manufacturing expanding in January at the fastest pace in seven months. The European Central Bank lent 529.5 billion euros ($699 billion) of three-year loans to 800 lenders on Feb. 29. Euro-area governments sanctioned 130 billion euros of bailout funds to Greece on Feb. 21.
Schroder also bought convertible notes issued by Hong Kong developer Shui On Land Ltd. (272) in February, while scaling back bets on Singapore’s real-estate market by selling Capitaland Ltd. (CAPL) and Ascenda Real Estate Investment Trust Ltd., Carrell said. It added Temasek Holdings Pte, whose bonds are exchangeable into the shares of lender Standard Chartered Plc, he said.
Schroder’s $122 million Asian Convertible Fund (SCHACBC) returned 7.6 percent to investors this year, beating 55 percent of its peers, according to data compiled by Bloomberg. The fund’s benchmark Asia ex-Japan Convertible Index, compiled by UBS AG, rose 6.5 percent on hedged basis over the same period. Schroder manages Asian funds in a joint venture with Fisch Asset Management AG of Switzerland.
“We believe the market is under-appreciating the potential increase in earnings in China with one of the most attractive convertible structures in the Asian market,” Carrell said.
Gome is benefiting from demand for appliances in the world’s most populous nation, forecast to reach 2.14 trillion yuan ($339 billion) by 2015, according to London-based researcher Euromonitor International. The company will start accepting orders for Apple Inc.’s latest iPhone 4S at its 1,600 stores from today.
Carrell said the fund favored Korean and Taiwanese chipmakers after yen gains in 2011 hurt Japanese rivals including Elpida Memory Inc. (6665) The Tokyo-based company, which had 12 percent of the DRAM market, filed for bankruptcy on Feb. 27. Benchmark prices for the chips jumped 17 percent last week to $1.05 apiece on March 2, after more than halving over the previous 12 months, data compiled by DRAMeXchange show.
“The bankruptcy of Elpida has removed nearly 20 percent of global market supply,” Carrell said. “This should drive up prices and improve Hynix’s margins.”
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