Vocal Chinese hedge fund manager lobbies for stock stabilisation fund in bid to boost confidence and counter foreign selling

Li Bei, founder of Shanghai Banxia Investment Management Center, urges authorities to intervene in stock markets to restore investor confidence
The creation of a state-backed stabilisation fund can win back investor confidence by absorbing sell-offs that are driven mainly by overseas investors, Li said

China stock market

Zhang Shidongin Shanghai

Published: 4:13pm, 11 Oct 2023

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China’s vocal hedge fund manager has called on Beijing to intervene in its stock markets by setting up a stabilisation fund and restore investor faith, which has been hit by outflows in the past two months after a barrage of weak economic data soured risk appetite.

Global fund managers sold 37.5 billion yuan (US$5.2 billion) of Chinese stocks via the exchange link with Hong Kong last month after a record outflow of 90 billion yuan in August, according to data from the city’s exchange, amid US-China tensions and China’s slowing economy.

The top priority for policymakers is to rebuild confidence among investors and break the vicious cycle of declining asset prices and weak investment sentiment, said Li Bei, founder of Shanghai Banxia Investment Management Center, in an article posted on the company’s official WeChat account on Tuesday night.

“The key is to break the harm declines in asset prices are doing to citizens and their confidence,” Li said. “The vicious cycle has taken hold and policies need to be more forceful now to cut off the circulation quickly.”

Li Bei, founder of Shanghai Banxia Investment Management Center.

The creation of a state-backed stabilisation fund can win back investor confidence by absorbing sell-offs that are driven mainly by overseas investors, and the fund can also make quick profits for the government because of stocks’ depressed valuations, she said.

The article was later deleted.

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Li’s voice is seen as lobbying Beijing to directly intervene in China’s US$9.5 trillion stock markets, which have remained sluggish even after the securities regulator rolled out a flurry of supportive measures, including a cut in stamp duties and tightening of new stock supply.

Her flagship Banxia Macro Fund, worth at least 10 billion yuan, has returned 169 per cent over the past five years, beating 91 per cent of its peers, according to fund tracker Howbuy. However, the fund has lost 7.8 per cent so far this year, trailing the 5.3 per cent drop in the CSI 300, according to Howbuy data.

Overseas investors have constantly pressured valuations, dumping Chinese stocks despite improved credit data and a pickup in the purchasing managers’ index of manufacturing, because they had already planned the liquidation of their holdings and the selling pressure may continue for a while, said Li. She had earlier blamed foreign investors for the stock market volatility, calling them “a bunch of aimless flies.”

History has shown that a stabilisation fund may not be helpful in reversing the downtrend in stocks. During the meltdown in 2015 that wiped out US$5 trillion from stock market valuations, the government directly bought stocks through mutual funds and state-backed financial firm China Securities Finance to counter the sell-offs. But despite their purchases, the CSI 300 Index tumbled more than 40 per cent in the space of two months.

Li has turned bullish on Chinese stocks, saying in another article last week that a looming recession in the US and the end of interest-rate increases in the world’s biggest economy could trigger inflows into China and restore risk appetite.

Still, she has lowered stocks holdings to 60 per cent of her Banxia Macro Fund to comply with risk control rules after the pullback in net asset value, according to the article.

Li founded Shanghai Banxia in 2011, before which she worked as fund manager at Bank of Communications Schroders Fund Management and Shanghai Honghu Investment Management.