Hillhouse Said to Seek Billions of Dollars for China Stocks

(Bloomberg) -- Hillhouse Capital Management Ltd. is seeking to raise billions of dollars to invest in beaten-down Chinese stocks after this year’s market rout, according to people with knowledge of the firm’s deliberations.

Hillhouse Said to Seek Billions of Dollars for China Stocks

Zhang Lei’s more than $50 billion investment firm may raise about $4 billion to be split between its flagship Gaoling Fund and the Hillhouse China Value fund, said one of the people, who asked not to be named discussing private information. The overall fundraising amount could change, according to the people.

Investors have fled Chinese stocks as concerns mounted about a trade war with the U.S., a slowing economy and the prospect of stock-based loans being unwound. The Shanghai Composite Index has tumbled 28 percent since peaking in late January and now trades at just 12 times earnings, compared with a ratio of 16 for the S&P 500, data compiled by Bloomberg show.

A New York-based spokesman for Hillhouse declined to comment.

Hillhouse Said to Seek Billions of Dollars for China Stocks

Hillhouse isn’t alone in finding some of the valuations among Chinese stocks compelling. State Street Global Advisors reckons the nation’s banks offer return-on-equity levels as high as any other segment in emerging markets, according to a recent analysis from Olivia Engel, chief investment officer of active quantitative equity.

Shanghai’s benchmark gauge slipped a further 1.3 percent Monday while Hong Kong’s Hang Seng Index held broadly steady, limiting year-to-date losses to 17 percent.

Tencent Holdings Ltd., which counts Hillhouse as a long-time backer and strategic partner, is trading below its 10-year average price-to-estimated earnings ratio, after its Hong Kong-traded shares plunged 36 percent this year.

Alibaba Group Holding Ltd., another company that Hillhouse has invested in, is down 17 percent this year in New York. At the end of September, Hillhouse owned almost twice as many shares in the Chinese e-commerce giant as it did a year ago, data compiled by Bloomberg show. It more than halved its holdings in the six months through March 31, 2018.

Hillhouse, founded by Zhang with money from the Yale University endowment, can invest globally from its offices in Beijing, Hong Kong, Singapore and the U.S. Its investors are dominated by North American endowment and pension funds and it periodically returns some of investors’ capital to maintain returns.

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