Pessimism has infected the stock market, with the CSI 300 index down 14 percent so far this year. After a 22 percent drop in 2022 and a 5.2 percent drop in 2021, the market is headed for its longest annual losing streak since its inception in 2002. In Hong Kong, the Hang Seng Index is headed to a fourth year of decline. , the worst since its inception in 1969.
"Macroeconomic complexities at home and abroad continue to test investors' nerves," Chang Zhen, portfolio manager at Harvest Fund Management, said in a third-quarter report to clients, citing heightened tensions between the U.S. and China, the war between Israel and Gaza and weak internal economic recovery. "There is a strong feeling of risk aversion and the market is trying to regain its confidence."
Chang's $76 million Harvest Return Selected Equity Fund has fallen 23.8 percent this year. The fund's top holdings, including battery maker CATL, developer Poly Developments and sportswear maker Anta Sports Products, have plunged 26 to 31 percent.
No wonder Chinese households are conserving their savings and increasing repayments to avoid bigger losses, according to the China Asset Management Association. The country's mutual fund industry has shrunk to 27.38 trillion yuan from a peak of 28.8 trillion yuan in July this year.
Last year, nearly 98 percent of actively managed local stock funds took a beating, with 829 of the 847 funds reporting losses, according to 51iFind. Of the 18 funds that made profits last year, many have struggled in 2023, with six of them posting losses.
Managers who overweighted the โnew energyโ theme have suffered some of the biggest losses. The $32 million JPMorgan HeXin Selected Equity Fund has plunged 42 percent this year and ranks as one of the worst performers, according to data from 51iFind. The fund's top holdings, which include CATL, JA Solar and Jinko Solar, have fallen between 29 percent and 57 percent.
The $95 million BOC International Selected Industry Equity Fund has suffered the same fate, incurring a 37 percent loss as top bets such as battery maker Eve Energy and BYD fell between 24 and 55 percent. percent.
"The continued outflow of foreign capital, among other factors, has put significant downward pressure on the market this year," BOC fund manager Lin Chengbo said in its quarterly report. "It will still take some time for the market to regain confidence from current low levels."
China to see capital outflow of $65 billion in 2024 as risks and confidence weigh
China to see capital outflow of $65 billion in 2024 as risks and confidence weigh
Exchange-traded funds that track the gaming sector have been one of the few bright spots this year. ETFs tracking the CSI Animation and Game Index have seen returns of up to 52 percent, taking the top three spots in the stock fund rankings compiled by 51iFind.
On the other hand, fund managers who look away from China's internal difficulties have been handsomely rewarded for their bets. Qualified Domestic Institutional Investor or QDII funds that track global indices such as the Nasdaq and S&P 500 accounted for more than half of the top 20.
China considers reducing mutual fund trading costs to regulate fees
China considers reducing mutual fund trading costs to regulate fees
Market bulls are unfazed. With political support gaining ground, the economic outlook remains promising, according to Harvest Fund's Chang. Quality consumer stocks, manufacturing giants with international competitive advantage and innovative technology companies still have huge potential to generate solid profits, he said.
"Despite the overall bearish sentiment, many individual stocks have still achieved outstanding performance this year," Chang said. "We continue to believe that purchasing quality companies at reasonable prices and holding them for the long term will help us achieve excess profitability."
