Chinese fund managers raised allocations to consumer and financial sectors in the third quarter, with bets on an economic recovery

Chinese funds increased their stakes in sectors that would benefit from a rebound in the world’s second largest economy after a swathe of growth-stabilising measures

The funds also added positions in cyclical sectors, buying shares of home appliances makers, carmakers and coal producers

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Robotic arms assemble cars in the production line for Leapmotor’s electric vehicles at a factory in Jinhua, Zhejiang province, China, April 26, 2023. Photo: Reuters

Published: 5:32pm, 27 Oct 2023Updated: 8:38pm, 27 Oct 2023

Chinese mutual funds increased their exposure to sectors that are closely linked to economic activity, ranging from consumer goods and services to financials and materials in the third quarter, analysts said, amid bets the world’s second-largest economy is set to rebound after authorities launched a swathe of growth-stabilising measures.

The funds also added positions in other so-called cyclical stocks that stand to benefit from a strengthening economy, buying shares of home appliances makers, carmakers and coal producers in the July-to-September period, according to Shenwan Hongyuan Group and China International Capital Corp (CICC). On the other hand, they unwound positions in technology stocks amid growing US-China tensions over semiconductors and other tech-related investments.

The recalibration of the investment portfolios has shed some light on how domestic fund managers perceive the growth outlook after Beijing took a slew of steps to sustain the economic recovery. China unexpectedly boosted its budget deficit for the year after the legislature this week approved the issuance of 1 trillion yuan (US$136.7 billion) of special government bonds for disaster relief and reconstruction. That adds to the previous supportive policies such as cuts in banks’ reserve requirement ratio and easing of restrictions on home purchases.

“Focus should be given more to those pro-cyclical industries about to bottom out and where investors have light positions against the backdrop of the economic recovery and policy tailwinds,” said Lin Limei, an analyst at Shenwan Hongyuan in Shanghai.

Pedestrians and shoppers on Nanjing Road shopping street in Shanghai, China, on Tuesday, Oct. 3, 2023. China’s Golden Week got off to a promising start as tourist trips and revenue jumped through the start of the holiday, suggesting some resilience in consumer appetites. Photo: Bloomberg

Goldman Sachs analysts said China’s growth drivers are changing with more opportunities in alpha themes rather than broad market beta, referring to the two key measurements used to evaluate the financial performance of a stock or an investment portfolio. Alpha is used to gauge the performance of a stock in relation to the market while beta measures relative volatility.

“China’s self-sufficiency drive can be distilled into mass consumption, hard technology/manufacturing upgrading, green/renewable energy, and SOE reform. Alpha opportunities appear greatest in such areas with clear and forceful policy support,” they said in a report.