Top China Investor Who Made 450% on One Bet Finds Next Win

(Bloomberg) -- After winning big on Chinese liquor and insurance, OFI Asset Management is betting environmental stocks offer the greatest potential for returns -- specifically those that process the country's dirty water.

Green companies have been neglected, despite President Xi Jinping's high-profile campaign to reduce pollution in the country, as investors continue to pile into better known blue chips. That suits the French money manager, which oversees one of the best-performing China equities funds of the past five years. Getting in early helped OFI AM pocket a 450 percent gain in distiller Kweichow Moutai Co. and 300 percent in Ping An Insurance (Group) Co.

“It's a no brainer for me,” said Xinghang Li, who helps manage about $500 million as head of emerging markets at OFI AM in Paris. “While you can't expect the Chinese consumer to drink 30 percent more alcohol every year, the environmental sector can easily see that kind of growth.”

For Li, 39, China's future looks a whole lot cleaner from Paris, the city that lent its name to a climate rulebook signed by almost every country worldwide. His top picks are Beijing Originwater Technology Co. and Tus-Sound Environmental Resources Co., as well as Hong Kong-listed Beijing Enterprises Water Group Ltd. and China Everbright International Ltd. All command valuations that are near multi-year lows.

Beijing Originwater rose 2.7 percent and Tus-Sound added 1 percent on Wednesday, bucking the trend in Shanghai where the benchmark closed 1 percent lower. China Everbright gained 1.4 percent in Hong Kong.

Profit Growth

Li says the four companies have an edge over rivals because of their market share and strong ties to government entities, teeing them up for financing support even amid tougher scrutiny around public-private partnerships. That will help their profits grow at least 20 percent annually over the next five years, according to Li. Analysts predict earnings-per-share growth will exceed that rate for all four stocks this year, data compiled by Bloomberg show.

OFI AM's new picks signal a departure from crowd favorites such as Shanghai-listed Moutai, which Li bought when the baijiu maker's shares were trading under 150 yuan after China's corruption crackdown stoked fears of a slump in demand. Patience paid off when he sold his stake in the company about four years later. Li, who joined OFI AM in 2011, is once again sitting tight.

“I remember when I bought Moutai, the share price did not go up right away,” he says. “I would rather position myself and wait.”

To contact the reporter on this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Will Davies

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