China’s biggest money manager says fears about growth, corporate earnings excessive

Investors’ heightened pessimism about China’s growth prospects and corporate earnings is misplaced, according to the nation’s biggest mutual fund manager, who pointed to the potential upside from the government’s target of more than doubling the per capita gross domestic product (GDP) over the next decade.

The government’s target “means that per capita GDP still has a lot of upside”, he said. “As long as the living standards improve and people’s lives get better, we think there surely must be a group of companies that will be able to offer quality products and services to deliver sustained growth and returns.”

China’s policymakers set the goal of boosting per capita GDP to match the West by 2035 at a Communist Party meeting some years ago. If the goal is achieved, then per capita GDP could reach US$30,000, according to government think tanks. The per capita GDP was 89,358 yuan (US$12,322) last year, according to the National Bureau of Statistics.

Zhang runs four mutual funds with combined assets of US$8.9 billion, the most among China-domiciled money managers. His flagship blue-chip fund had 39.1 billion yuan of assets under management at the end of June, according to the report.

The second quarter was challenging for Zhang, with the fund’s net asset value falling 2.3 per cent in the period. China’s CSI 300 Index fell 2.1 per cent last quarter, as investors flocked to haven trades, snapping up bonds and high-dividend stocks amid a patchy economic recovery. Meanwhile, Hong Kong’s Hang Seng Index rose 7.1 per cent in the span.

The fund had allocated 47 per cent of its assets, or 18.6 billion yuan, to Hong Kong-traded stocks by the end of the quarter, according to the report.

“We strongly disagree with the pessimist expectations that are built on worries over [economic] stagnation,” said Zhang. “What we need most now is patience. Expectations of secular returns by high-quality companies are considerable. Even if they maintain their current profitability, their dividend yields are already close to some traditional dividend stocks.”

The criteria for his stock-picking strategy remained unchanged, focusing on good business models, high bars for industry competition, sufficient cash flows and good corporate governance, the report said.

Social-media giant Tencent Holdings, offshore oil producer CNOOC and Chinese liquor distiller Wuliangye were the fund’s top three holdings, making up 29 per cent of its total assets.

The biggest change to the portfolio last quarter was the addition of Hong Kong-listed luggage maker Samsonite International, which emerged as the fund’s ninth largest holding, while retail banking giant China Merchant Banks disappeared from the top 10, according to the report.