While Hugh Hendry and Jim Chanos are firm on their stance against China and continue to hold short positions in the country, Paul Conway, an ex-Oppenheimer & Co. banker, has chosen to go long on Chinese companies. He is attempting to raise a $60 million China Revaluation US Fund, Nishant Kumar and Michael Flaherty report for Reuters. Conway’s theory is that tough scrutiny of foreign listed Chinese companies has weeded out the shady operations and what is left now are worthy and growing businesses.
Conway Believes Fraud Has Been Weeded Out, Leaving Room for Healthy Growth
From 2010 to 2012, about 70 Chinese companies were targets of class action suits which wiped out $26.5 billion from their market value. Carson Block’s Muddy Waters went after several fraudulent companies including Sino-Forest Corporation (TSE:TRE) and Longtop Financial Technologies Ltd (NYSE:LFT). As investigation into these companies began, Block and other shortsellers recruited large gains while investors like John Paulson lost millions in his investment in Sino-Forest Corporation (TSE:TRE).
Conway thinks that present Chinese companies listed on foreign exchanges trade at very cheap valuations and have legitimate operations. Another development that is going to allow more transparency into these companies is the recent agreement between China and the U.S. which gives greater access to audit statements.
Conway Has Considerable Experience in China
Conway has 12 years of experience at Oppenheimer where he worked in a string of Chinese firms’ privatizations in 2006. He has served as the CEO of China-based SearchMedia Holdings, now Tiger Media Inc (NYSEMKT:IDI), where he restructured the company and changed the entire management team. While in China, he has carried out transactions worth $12 billion.
This new long China fund plans to invest in 15-20 companies. The focus sectors of the China Revaluation fund will be consumer, hotels, travel and leisure, media and education. It will be managed by Paul Jackson, who has previously worked at Fidelity Investments and Wellington Management. The advisory group of the fund will include Paul Keung from Oppenheimer Investments Asia and and Eddie Woo from Mascotte Holdings Limited (HKG:0136).