Photographer: Zhu Gang/Bloomberg

Top China Fund Manager Puts Half of His Cash Pile Back in Stocks

Updated on
  • HSBC Jintrust’s Qiu buys low-valuation shares in rally bet
  • ‘Real situation actually isn’t as bad as people expected:’ Qiu

At the end of 2015, a top China fund manager was so worried about the outlook for stocks that he held as much cash as he possibly could. Now, he’s loading up on equities.

Qiu Dongrong is buying shares in pharmaceutical, chemical and construction material firms, he said in an interview last week. The fund manager at HSBC Jintrust Fund Management Co. has whittled down cash to about 7 percent of assets from 15 percent on Dec. 31, and says his main strategy is to pick up stocks trading at low valuations. His $323 million large-cap fund has beaten 94 percent of peers over the past three years.

For Qiu, the Shanghai Composite Index’s slump at the start of the year created a mismatch between stock prices and signs of a stabilizing economy, and a buying opportunity. The measure is up 13 percent from January’s low, with consumer-staple and material stocks leading the rebound with gains of at least 25 percent.

“Lots of sectors and individual stocks have factored in extremely pessimistic expectations,” said Qiu, 32. “There’s a chance for stock valuations to recover from those lows. The real situation actually isn’t as bad as people expected.”

While figures due next week are forecast to indicate a third straight monthly drop in exports, official data show that producer prices have risen for three consecutive months and manufacturing is stabilizing. The People’s Bank of China may cut lenders’ reserve-requirement ratios to cushion the impact of Britain’s vote to leave the European Union, according to HSBC Holdings Plc and AXA Investment Managers Asia Ltd.

Qiu hasn’t escaped the 2016 slide unscathed: his fund’s down 6.2 percent. Still, that beats 89 percent of his peers, data compiled by Bloomberg show. The Shanghai Composite sank 15 percent in the same span, weighed down by a lackluster economy and yuan depreciation pressures. A Bloomberg survey of strategists and investors predicts that the gauge will retreat 2.7 percent this quarter.

Chinese policy makers have been seen stepping into both the currency and equity markets to limit losses as they look to fend off capital outflow pressures and curb volatility. China Securities Finance Corp., a state-run investing behemoth set up with more than $480 billion during last summer’s stocks rout, is a top 10 shareholder in more than 600 companies that include almost all of China’s Inc.’s biggest names.

Growth Stocks

Qiu said he’s also buying growth stocks with price-to-earnings ratios lower than 20, such as electronics companies. While he didn’t give any names, his fund’s quarterly report show that its top holdings as of March 31 included China Petroleum & Chemical Corp., Beijing New Building Materials Plc and Sinomach Automobile Co.

With the Shanghai index closing above the key 3,000 level for the first time since April this week, any corrections in the near future won’t be broad-based and likely limited to stocks that have previously made significant gains, Qiu said. The gauge closed at 2,988.09 on Friday.

“The potential for an upside on stocks is big relative to the downside risk,” he said. “The intrinsic values of stocks are higher than current prices, so there’s a chance of prices coming back to reasonable levels.”

— With assistance by Shidong Zhang

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