AFTER beating almost all rivals on the Chinese mainland with 46 percent return in one equity fund, investor Qu Yang is shifting his money into Hong Kong.

The money manager at Qianhai Kaiyuan Fund Management Co. has boosted the proportion of Hong Kong shares in one of his winning funds to more than 30 percent over the past three months, according to the fund’s latest fact sheet. That compares with just 13 percent at the end of the first quarter and is the highest allocation to Hong Kong stocks in almost two years, the fund’s historical reports show.

“Hong Kong stocks have a better chance than A shares of outperforming in the second half,” said Qu. Qu, whose Qianhai Kaiyuan SH-SZ-HK Advance Selected Flexible Allocation Mixed Fund is beating 98 percent of its peers, has sold some of his best-performing mainland stocks and bought Hong Kong’s casino and consumer-related shares.

A likely rate cut by the U.S. Federal Reserve should draw more foreign investors to equities in Hong Kong, where valuations remain below historical averages, according to the fund manager who oversees some US$970 million.

Global traders are expecting a quarter-point interest rate cut by the Fed this month, with officials possibly easing by a half-percentage point, moves that would lure capital out of the United States to markets elsewhere that offer higher returns. The Hang Seng Index is one of the world’s cheapest major benchmarks.

Hong Kong stocks are near the widest discount to their mainland peers in 16 months. Mainland investors piled into Hong Kong shares at the fastest pace in more than a year in June and continued their purchases this month.

Shenzhen-based Qu is bullish on firms that benefit from the mainland’s growing domestic demand, including Internet companies listed in Hong Kong. Macao casino operators also stand to gain from their grip on the world’s biggest gambling hub, as well as increasing inbound travel to the city, he said.

According to his fund’s quarterly report, Qu boosted assets in SJM Holdings Ltd. in the second quarter, while Sands China Ltd. and Tencent Holdings Ltd. were among the fund’s top 10 holdings by value.

Qu isn’t abandoning mainland equities. He still likes high-end liquor makers, for one. Kweichow Moutai Co., which featured among the fund’s top 10 holdings at the end of June, has climbed more than 60 percent this year.

“More consumers will be willing to buy more expensive baijiu due to China’s consumption upgrade,” Qu said, referring to the popular liquor Moutai makes.

(SD-Agencies)