Long-term investors such as Investcorp, Fung Capital, BOCHK launch funds to bet on China’s growth prospects
- Fung Capital said it would set up a US$500 million fund with Bahrain’s Investcorp to invest in mid-cap companies across the Greater Bay Area (GBA) in southern China
- BOCHK Asset Management Limited launched the All Weather China New Dynamic Equity Fund in its Wealth Creation Series
Some money managers and institutional investors are launching funds to take advantage of beaten-down valuations and the long-term growth prospects in the world’s second-largest capital market.
Fung Capital, the private investment office of Hong Kong’s Fung Group, said it would set up a US$500 million fund with Bahrain’s alternative asset management firm Investcorp to invest in mid-cap companies across the Greater Bay Area (GBA) in southern China.
BOCHK Asset Management Limited, a unit of one of Hong Kong’s biggest currency-issuing banks, is seeking to raise an unspecified amount of cash from outside investors for its All Weather China New Dynamic Equity Fund.
“Major capital markets across the globe had been volatile,” and BOCHK Asset Management’s new sub-fund was created to “identify all-weather investment opportunities and help [customers] manage their investment portfolios flexibly,” chief executive Shen Hua said in a statement on Wednesday.
Fung-Investcorp and BOCHK Asset Management are two institutional investors that are going against the herd in the equity sell-off in mainland China and Hong Kong this week. Hong Kong’s key stock index rose 0.9 per cent over two days on Wednesday, recovering some of Monday’s 6.4 per cent crash. Benchmark indexes similarly gained in Shanghai and Shenzhen, reversing Monday’s slump.
“At present, the market is offering attractive asking prices to long-term investors,” said Zhang Kun, who manages about US$13 billion of assets over four funds at E-Fund Management in Guangzhou. Once the pandemic fades, “every sector will have outstanding enterprises led by distinguished entrepreneurs to aid the rise of China’s economy,” he said.
The star investor at China’s largest money manager is advising clients to be patient for a turnaround in his latest third-quarter report published on Wednesday. Investors should treat stock investing like buying a home to navigate the current market turbulence.
“If investors invest in stocks with the same mentality as they buy houses, including parsing fundamentals meticulously and holding for the long run, the outcome will probably be much better,” he said in a report issued on Wednesday. “In a rational world, trading volumes are not supposed to be too high, but in the real world, stock investors often react to short, inconsequential information.”
The E-Fund Blue Chip Selected Mixed Fund, the biggest of his four vehicles with 53.2 billion yuan (US$7.3 billion) of assets, fell 15 per cent last quarter, bringing its losses this year to 34 per cent. His other three funds have suffered a 26 to 34 per cent beating in 2022, according to Bloomberg data.
The CSI 300 Index, which tracks the nation’s biggest companies, has declined 26 per cent this year through October 26. At an annualised rate of 29 per cent, the index is approaching its worst year since 2008 following the collapse of Lehman Brothers.
Investcorp’s fund was announced during the Future Investment Initiative summit in Riyadh, after Hong Kong’s Financial Secretary Paul Chan Mo-po made the case during a session at the conference to persuade global investors and talent to return to Asia’s third-largest capital market.
The new fund was the fourth venture between the Bahrain investment vehicle and Fung Capital, the private equity investment office of the families of Victor Fung and William Fung.
A myriad of reasons have fanned market losses this year. China’s market-unfriendly zero-Covid policy has watered down the benefits policy stimulus, while the most aggressive policy tightening by the Federal Reserve in three decades have shocked investors even with ample warnings.
The market was too focused on short-term headwinds ranging from the Covid-19 resurgence, sliding home sales and the yuan depreciation, while ignoring long-term earnings trajectory, Zhang said. His Blue Chip fund has gained 46 per cent over a three-year horizon and 103 per cent since its inception in September five years ago.
Zhang is an advocate of value investing, favouring a buy-and-hold strategy in stocks with secular growth or are undervalued. In his previous quarterly report to fund clients, Zhang said investors should focus on business models, free cash flows and governance, instead of macro elements.
The CSI 300 Index is now valued at 13.2 times price-earnings multiple, about 10 per cent below its average over the past decade, according to Bloomberg data, while members of the Hang Seng Index trade at a record 40 per cent discount to book value.
Zhang doubled its position in contract drug maker Wuxi Biologics in the Blue Chip fund last quarter and reduced its stake in No. 1 liquor distiller Kweichow Moutai, according to the latest report. He added 1.9 million shares of Tencent Holdings, boosting its position to 20 million.
Zhang raised the fund’s stock position to 94.02 per cent by the end of September, about 2 percentage points higher than the previous three-month period.