As China stocks crash, this top-ranked fund steps in to buy

[TAIPEI] When Shanghai stocks plunged the most in eight years on Monday, Huey-yuan Yang was buying.

And he'll be buying next time, too - confident that Chinese policy makers are prepared to prop up the market after big down days.

"I see buying-on-dip opportunities amid abnormal declines," said Mr Yang, who manages the equivalent of US$169 million for the HSBC China A-Share Focused Fund in Taiwan. The fund beat 93 per cent of peers over the past year with a 58 per cent return. "The recent sell off didn't change my view."

Mr Yang is one of eight fund managers in the Greater China region surveyed by Bloomberg who plan to increase holdings of the nation's yuan-denominated shares this year. In the poll of 13 firms, which oversee a combined US$51 billion, the other five said they'll maintain holdings.

The responses show that some professional investors are sticking with the Chinese market, despite stomach-churning volatility and concern that unprecedented state intervention has undermined the country's free-market reform plan. Yang says the government's response was necessary to restore calm after a rout that erased US$4 trillion of value in less than a month.

The Shanghai Composite Index plunged 8.5 per cent on Monday, adding to this month's 15 per cent loss, the most in six years. The gauge is down 29 per cent from its June 12 peak.

For John Lin, a money manager at AllianceBernstein in Hong Kong, valuations aren't cheap enough yet to make mainland shares attractive relative to their Hong Kong counterparts. The median stock on mainland bourses trades at 66 times reported earnings, higher than in any of the world's 10 largest markets, according to data compiled by Bloomberg. That compares with a multiple of 13 in Hong Kong.

"The market continues to be very expensive," Mr Lin said.

Selling by margin traders has created bargains among large Chinese companies that will benefit from the government efforts to stimulate economic growth and reform state-owned companies, said Lilian Leung, a portfolio manager at JPMorgan Asset Management Ltd in Hong Kong. Outstanding margin debt on mainland bourses has tumbled about 40 per cent since mid-June, according to data compiled by Bloomberg.

"We remain constructive on the A-share market," Ms Leung said. "We will continue to add on to quality growth names, which have corrected to more attractive valuations."

Other firms in the survey that plan to boost their holdings include Baring Asset Management, Bocom International Asset Management, Franklin Templeton SinoAM, Hengsheng Asset Management Co, UBS Global Asset Management and Shanghai Hedger. Cathay Securities Investment Trust Co, JK Life Insurance Co, Shanghai Simpleway Asset Management Co and Wanjia Asset Management Co are maintaining their positions.

BLOOMBERG