Qi Capital keen on Taiwan, shorts India

By Jeffrey Hodgson

HONG KONG (Reuters) - Hedge fund manager Qi Capital is finding its best stock-buying opportunities in Taiwan, while shorting shares of Indian banks and auto makers, the firm's founder and chief investment officer said on Tuesday.

But Qi, which is also betting on the appreciation of the Japanese and Australian currencies, is cautious about the valuation of Asian equity markets given their long bull run, added Terence Khoo, who is also Qi's managing director.

"The risk premium is so low today that the risk/reward is not as attractive as we're used to. I like to buy when nobody is buying rather than buying when everyone is buying. It's a bit difficult to be looking for new ideas in a market like this," he told the Reuters Hedge Funds and Private Equity Summit in Hong Kong.

"We've had the longest rally we've seen for more than 20 years. About the only market that I see a lot of value in today is Taiwan, although Taiwan has its own problems and politics. But the valuations there are pretty compelling," he said.

Khoo said Qi's Asian Macro Fund, which had $66.8 million in assets under management as of March 1, is currently about 90 percent invested in equities, with the remainder in currencies. It can also invest in fixed-income and commodities.

While Qi Capital's Asian Macro Fund is still open for further investment, Khoo said he is not particularly keen on marketing his fund because he sees fewer compelling investment opportunities than he would like.

"We're more focused on trying to deliver returns and we've been a bit more cautious than most people. So it's a bit more difficult to go out there and say 'buy' because we feel cautious," he said.

The fund has produced an annualized return of 16 percent from its launch in May, 2005, to the end of February. It was up 1.69 percent in the first two months of the year.

Before setting up the fund, Khoo was a managing director at the investment office of Malaysian billionaire Robert Kuok, who was recently ranked by Forbes magazine as the world' 104th richest person. He also managed funds at Hong Kong-based hedge fund firm Sofaer Capital.

Qi's largest long equity positions as of March 1 included Hi Sun Technology (0818.HK: Quote, Profile, Research, Stock Buzz), Japanese building and civil engineering contractor Asunaro Aoki (1865.T: Quote, Profile, Research, Stock Buzz), as well as Taiwan's Shin Kong Financial (2888.TW: Quote, Profile, Research, Stock Buzz) and Ta Chong Bank

(2847.TW: Quote, Profile, Research, Stock Buzz).

BUYING STEEL, TECHNOLOGY

The firm has about 20 percent of its equity portfolio invested in Taiwan and is free to go higher, but "hedging the political risk in Taiwan is always a nightmare", Khoo said.

Taiwan is its largest geographic allocation, followed by China, which it invests in primarily through Hong Kong-listed H-shares. On an industry basis, he said it is hard to make broad calls because so many sectors have rallied.

"The only theme that I see as somewhat compelling still is steel. I think there's a restructuring in the industry. Last year steel was trading at below average cost at one stage," he said.  Continued...