China’s mutual fund managers are making money again after delivering grim reports in 2022

More than 99 per cent of equity funds in China have made positive returns this year, a stark contrast with the slump in 2022
Money managers say to look past short-term volatility in the market and pick up stocks on dips

China’s mutual fund managers are relishing the market’s best start to a year in almost three decades, as Chinese equities became the hottest asset in the global marketplace. That will go some way to soothe the pain in 2022.

More than 99 per cent of the 2,209 equity funds recorded positive returns so far this year, with the best of the lot chalking up 15 per cent gain, according to data compiled by Eastmoney. Only six funds were in the negative, with the worst performer recording a 1.5 per cent setback.

The auspicious start to the Year of the Rabbit is in stark contrast to the just-concluded calendar year. Covid-19 lockdowns, sliding economic growth and a super-hawkish Federal Reserve combined to inflict an average 11 per cent loss in the industry, according to an estimate by Guotai Junan Securities, the worst in at least three years.

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“Major headwinds, including Covid curbs, property policies and regulatory environment, have all diminished considerably,” Zhang Kun, who manages US$12.3 billion at E Fund Management in southern Guangdong province, said in his latest report to clients on Friday.

While the market will definitely experience instability from time to time, investors should look past those fluctuations, he said. Some quality stocks are still relatively cheap and “have high odds of delivering higher returns to long-term investors”, he added.

Morgan Stanley lifts MSCI China target on robust cyclical recovery possibility

Stock benchmarks advanced 11.4 per cent jump in Hong Kong and 8 per cent on mainland bourses to top major global equity indices, according to Bloomberg data. The China reopening bets have also powered a 14 per cent gain in the MSCI China Index, the best start to a year since 1996, while China analysts at Wall Street firms raised their targets and global funds flocked back to the region.

“An earlier and stronger cyclical growth recovery is on track,” Morgan Stanley’s China equity strategist Laura Wang said in a research note on Friday. A recovery in corporate earnings “could be in full swing as soon as post-Chinese New Year holiday” and investors should view any price correction as a chance to buy, she added.

This year, global funds have scooped up a net 112.5 billion yuan (US$16.6 billion) worth of onshore stocks, according to Stock Connect data. The net purchases have already surpassed the inflows of US$13 billion for full-year 2022.

Despite the bullish undertone, some are worried that the market has run ahead of fundamentals. With MSCI China valuation returning to its long-term average, investors surveyed by Bank of America said they would welcome a 5 to 10 per cent market pullback.

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Zhang’s flagship vehicle, the US$7.9 billion Blue Chip Selected Mix Fund, has soared 46 per cent since the end of October, mirroring the rally in the Hang Seng Index over the same period.

In the latest portfolio adjustment, he added 1.8 million shares of WuXi Biologics and 210,000 shares of liquor distiller Kweichow Moutai. Tencent Holdings, which has advanced 20 per cent in 2023 in Hong Kong, remains the fund’s top holding.

“With an improved macro backdrop that comes with changes in policy, certain areas in the China market are starting to look interesting,” said Chloe Shea, investment director for multi-asset at Schroders in Hong Kong. “The expected recovery in consumption and economic activities should also give legs to selective Chinese e-commerce and online entertainment platforms.”