(Bloomberg) — China’s best-performing mutual fund isn’t buying into the market’s euphoria, and is instead betting stocks that the economic recovery will be weak in 2023.
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The recent rally suggests that expectations are ahead of reality, Huang Hai, who manages the Wanjia Macro Zeshi Multi-Strategy Flexible Allocation Fund, said in a group media interview on Friday. High-value sectors – such as tourism and beverage manufacturers – may look back a bit if earnings in the first quarter disappoint, he said.
The fund returned 57% this year through Monday, compared with more than 9,000 Chinese mutual funds and hybrid products, according to data compiled by financial website EastMoney Information Corp.
Huang’s view reflects caution as China’s sudden post-Covid Zero looks set to trigger a major outbreak. He said that while the country will eventually overcome the epidemic, the process will not be without obstacles and market uncertainty will continue for now.
“We are more positive on value stocks like financials,” he said. Huang likes energy stocks, including coal, oil and gas.
With more than 1.8 billion yuan ($258 million) in assets, according to the fund’s latest quarterly filing, its core positions include value stocks with relatively high dividends and strong income. The top three holdings at the end of September were CNOOC Ltd, Shanxi Lu’an Environmental Energy Development Co. and Shanxi Coking Coal Energy Group Co., and Shanxi Coking Coal Energy Group Co.
On top of its biggest gainer for the year, Wanjia Asset Management Corp’s fund posted gains of less than 1 percent last month as the broader market rallied.
China’s benchmark CSI 300 index has jumped more than 10% since late October, paring losses for the year to around 21%, as the reopening and policy support helped the ailing property sector. The best stock performers are Luzhou Laojiao Co. and China Tourism Group Duty Free Corp. And they include reopening developers like Seazen Holdings Co.
Referring to the annual political conference of the country’s top lawmakers in March, Huang said he is more positive about performance in the second half of next year after the two sessions are over.
On property, the mutual fund has reduced the weight of the sector in its portfolio, according to its quarterly filing. Gemdale Corporation was the only asset name in the fund’s top 10 holdings as of the end of September.
Chinese authorities have been ramping up support for developers in recent months, seeking to put a floor on the property crisis weighing on the economy.
At the two-day Central Economic Work Conference that concluded last week, officials pledged to support consumer demand for better housing, ensure stable growth in the sector and meet the financing needs of property companies.
“There may be additional asset policies, but the markets may be pricing in the best estimate,” Huang said. “High-quality companies still have great prospects if they can stabilize,” he said, adding that issues such as sales, land holdings and cash flows, the fund will need some time to review the sales.
–With help from Mengchen Lu and April Ma.
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