Published: 06:08 PM, 19 December 2023
Enduring pain: 90 percent equity funds of China suffer as market loses 1 trillion USD in value
This pessimism has infected the stock market, with the CSI 300 index down 14 percent so far this year. After a 22 percent decline in 2022 and a 5.2 percent decline in 2021, the market is set for its longest annual loss since its inception in 2002. In Hong Kong, the Hang Seng index is headed for its fourth year of recession, the worst since its establishment in 1969.
Growing US-China tensions, the Israel-Gaza war and a weak domestic economic recovery, Chang Zhen, portfolio manager at Harvest Fund Management, told clients in its third-quarter report. “Risk-averse sentiment is strong and the market is trying to regain its confidence.”
Chang's US$76 million Harvest Return Selected Equity fund has fallen 23.8 per cent this year. The fund's top holdings, including battery maker CATL, developer Poly Developments and sportswear maker Anta Sports Products, declined 26 to 31 percent.
It's no surprise that Chinese households are holding on to their savings and increasing redemptions to prevent deeper losses, according to the Asset Management Association of China. The country's mutual fund industry has declined to 27.38 trillion yuan from a peak of 28.8 trillion yuan in July this year.
According to 51iFind, about 98 percent of actively managed onshore equity funds made losses last year, with 829 out of 847 funds reporting losses. Of the 18 funds that made profits last year, many are expected to struggle in 2023, with six making losses. Bets on 'new energy' stocks like CATL have not paid off for fund managers this year.
Managers who placed greater emphasis on the “new energy” theme have suffered some of the biggest losses. The US$32 million JPMorgan Hexin Select Equity Fund has fallen 42 percent this year to become one of the worst performers, according to 51iFind data. The fund's top holdings, which include CATL, JA Solar and Jinko Solar, have fallen 29 to 57 percent.
The US$95 million BOC International Selected Industry Equity Fund suffered a similar loss, losing 37 per cent, as top bets such as battery makers Eve Energy and BYD slid 24 to 55 per cent.
“In addition to other factors, the continued outflow of foreign capital has exerted significant downward pressure on the market this year,” Lin Chengbo, manager of BOC Fund, said in his quarterly report. “It will still take some time for the market to regain confidence from the current lows.”
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Foreign investors pulled 128 billion yuan (US$18 billion) from Chinese onshore stocks in four consecutive months through July. The worst exodus on recordAccording to Stock Connect data. The selloff continued in December, with outflows of 29 billion yuan as of Friday, according to Bloomberg data.
Exchange-traded funds tracking the gaming sector have been one of the few bright spots this year. The ETF tracking the CSI Animation and Games index has delivered returns of up to 52 per cent, claiming the top three spots in the equity-fund rankings compiled by 51iFind.
On the other hand, fund managers who stayed away from China's struggles domestically have been handsomely rewarded for their bets. Qualified domestic institutional investors or QDII funds that track global indices like the Nasdaq and S&P 500 account for more than half of the top 20 performers.
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The outlook for China's stock markets in 2024 remains challenging. The lack of clear growth catalysts and long-running problems in the property market are likely to weigh on investor sentiment. Wealth managers at HSBC and JP Morgan said,
Market bulls are relaxed. According to Harvest Fund's Chang, the economic outlook remains promising, with increased policy support. Quality consumer stocks, manufacturing giants with an international competitive edge and innovative technology firms still have plenty of potential to deliver solid earnings, he said.
“Despite the overall pessimistic sentiment, many individual stocks have still delivered outstanding performance this year,” Chang said. “We believe that buying into quality companies at fair prices and holding for the long term will help us generate additional returns.”
>> Source: biz.crast
