China’s best-performing fund strikes gold in nascent Beijing bourse for startups
CHINA’S best-performing mutual fund of 2023 sees more gains in the volatile corner of the market where it derived enough upside to beat more than 7,000 competitors last year.
The fund, whose mandate requires it to invest at least 80 per cent of its equity assets in stocks listed on the nascent Beijing Stock Exchange, returned 59 per cent in 2023. This came even as broader Chinese stocks slumped due to a slowing economy and property crisis.
“Investing in the Beijing exchange is like sprinting on a high-speed rail,” said Gu Xinfeng, a fund manager at China Asset Management in Beijing, who oversees the ChinaAMC BJSE Innovative SME Selected 2Y Regular Open Mixed Launched Fund. “Many investors are still confused about the Beijing rally; it’s been swift, gains have been immense, but money is gushing in.”
The fund’s almost-60 per cent return for 2023 compares with the 15 per cent gain for the Beijing Stock Exchange 50 Index, which tracks the shares considered the most representative on the gauge, and the 11 per cent slide in China’s benchmark CSI 300 Index. The majority of the 7,337 onshore Chinese mutual funds lost money last year, according to data compiled by Bloomberg.
The main reason the Beijing exchange did so well was a policy package announced in September pledging to allow firms to transfer their listing to other exchanges and lowering trading requirements for investors, Gu said. The Beijing bourse began only in 2021 as a financing channel for early-stage companies with innovative potential.
Chinese stocks have a good chance of bouncing back this year as most gauges have fallen so much, and the Beijing exchange is likely to amplify any potential gains, Gu said. “While some Beijing stocks may be overbought, the upside overall is not over and the Beijing Stock Exchange 50 Index will probably oscillate higher over the coming six months.”
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Gu’s fund, which had 404 million yuan (S$76.7 million) of assets at the end of September 2023, has a slightly unusual format, being open for subscription and redemption only for a few days every two years.
The fund was last open for investors in early December, and scaled down some of its holdings over the period, possibly due to the long lock-up requirement, Gu said. The next window for subscription and redemption is not due until December 2025.
The investment mandate also includes putting at most 20 per cent into Hong Kong stocks, and at least 5 per cent in cash and government bonds during its open-end period.
Gu, who also manages a non-Beijing exchange mandated fund, said he has been switching out some Shanghai- and Shenzhen-listed companies from that fund and replacing them with Beijing-listed stocks.
The top holdings of the fund included car parts supplier Suzhou Junchuang Auto Technologies, bearing producer Suzhou Bearing, and Kopper Chemical Industry, which makes a substance used in the recycling of electric vehicle batteries, as at the end of September. The three rose at least 25 per cent each in the fourth quarter.
The success of the Beijing bourse is attracting more asset managers to start researching and investing in the startups, Gu said. “Many fund managers that are looking at Beijing exchange firms did not set out to chase opportunities on the board, but stumbled across the companies when looking for the leaders in a niche sector.”
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