U.S. Prudential China JV to launch 10 billion yuan fund

The fund, whose launch was approved by Chinese regulators this month, will focus on large-cap stocks, James Yuan of the Shanghai-based joint venture, Everbright Pramerica Fund Management Co., told Reuters on Tuesday.

A Pramerica spokeswoman said the company was awaiting formal approval for the timing and exact size of the product.

Beijing has approved a string of new stock funds over the past month in an apparent bid to shore up the stock market ahead of a key Communist Party meeting later this year and a flood of new share offers by large state firms.

The pace of new fund launches and demand for the products are closely monitored by Chinese institutional investors as a measure to help predict the near- to medium-term trend of the overall stock market, fund managers said.

The 30 percent-plus gain in the benchmark Shanghai composite index ( - ) since early July was largely due to new funds' purchases of large-cap stocks, particularly financials such as the Industrial & Commercial Bank of China (Shanghai: - ), they said.

The index has rallied about 80 percent so far this year.

BLUE-CHIP BUBBLE?

China Post & Capital Fund Management Co. attracted nearly 60 billion yuan in subscriptions to a new mutual fund on Monday, forcing it to close the sale on the first day since it was only allowed to raise a maximum of 15 billion yuan.

Yuan, a veteran fund manager from Taiwan, said the A-share market still had room to rise because the rapid earnings growth enjoyed by many Chinese-listed firms was expected to extend into 2008.

"I don't think there is a blue-chip bubble yet. Earnings growth remains fast and that has not yet been fully factored into stock prices," Yuan said. "Stock indices have set a series of new highs, but many stocks have not."

Yuan sounded more bullish than Li Xuli, his counterpart at Schroders' (LSE: - ) fund management joint venture in Shanghai, Bank of Communications Schroder Fund Management Co., which raised 12 billion yuan for a blue-chip fund this month.

Li told Reuters on Friday the stock market was overheated, although it would not tumble soon as local investors have few investment alternatives in a high-inflation environment.

Yuan said he still saw opportunities in select financials, steel firms and second-tier property developers -- the star performers over the last month -- as well as coal firms.

In an interview with Reuters in mid-July, Yuan had singled out steel, financial and property as the main sectors that were likely to outperform the market.

"Coal prices are still very strong. That's why I'm now particularly optimistic about coal shares," Yuan said, but declined to identify any coal companies.

($1=7.584 Yuan)