Chinese fund managers cut stock holdings to nine-month low as policy and valuation risks abet US$32.4 billion loss

Holdings slipped to 75.9 per cent of stock-focused mutual funds’ total assets in the first quarter, the lowest since June, according to Bohai Securities
Zhang Kun, China’s biggest fund manager, cut the holdings of Chinese baijiu stocks by 10 percentage points as popular ‘stampede bets’ unwound

China stock market

Zhang Shidongin Shanghai

Published: 4:19pm, 28 Apr 2021

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China’s stock-focused mutual funds trimmed their positions last quarter to the lowest level since June as money managers took shelter from the twin threats of policy tapering and valuation excesses that undermined “stampede bets”.

The average equity holdings dropped to 75.9 per cent of the total assets in the industry, according to Bohai Securities, a 2.1 percentage points drop from the end of 2020 when the size of the industry topped 21 trillion yuan (US$3.24 trillion).

Onshore fund managers added banking and chemical stocks to catch the benefit from economic reflation as China’s growth recovery strengthened. They pared consumer and manufacturing stocks, two of the more popular sectors for institutional investors over the past year.

The first-quarter fund holdings offer an insight into how the nation’s biggest money managers have readjusted their strategies and portfolio with a multitude of challenges as tightening credit, antitrust scrutiny and geopolitical risks have begun to squeeze returns.

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While mutual funds delivered 2 trillion yuan of income to investors in 2020, they have had a poor start to 2021 by incurring a combined loss of 210 billion yuan in the first quarter, according to data published by TX Investment Consulting. The CSI 300 Index of China’s biggest onshore stocks fell 3.1 per cent in the period. They made no money in the final quarter of 2020.

“There was an obvious shift of investment style in the first quarter,” said Cao Chunxiao, an analyst at Huaxi Securities. “Cyclical stocks gained favour among mutual funds” because the economic recovery from the pandemic gained further traction, he added.

Surveillance camera maker Hangzhou Hikvision, China Merchants Bank and property developer China Vanke were among the biggest holding increases in the first quarter, according to Bohai Securities. On the opposite, home appliances maker Midea Group and car battery maker Contemporary Amperex suffered net reduction.

The industry’s three biggest holdings last quarter were the nation’s top liquor distillers Kweichow Moutai and Wuliangye Yibin as well as WeChat operator Tencent Holdings.

While money managers cut their equity exposure, that was still not enough to completely shield them from market turbulence that pummelled overvalued stocks such as Kweichow Moutai and Longi Green Energy – that powered the broader-market rally last year.

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Kweichow Moutai, the world’s most valuable distiller, tumbled 2.5 per cent in Shanghai on Wednesday after reporting a 6.6 per cent increase in first-quarter profit, decelerating from a 13 per cent growth in 2020.

Zhang Kun, who manages 133 billion yuan worth of funds as China’s biggest money manager at E Fund Management in Guangzhou, cut holdings of four baijiu stocks including Kweichow Moutai and Wuliangye by 10 percentage points during the quarter, according to Shenwan Hongyuan Group. The sector accounted for 30 per cent of the total assets he managed at the end of March, the brokerage estimated.

Zhang’s biggest investments in Hong Kong stocks were bourse operator Hong Kong Exchanges & Clearing, food-delivery platform owner Meituan and Tencent. They made up about a quarter of his investment portfolio.

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