All eyes are on the next phase of China’s rebound. We scouted through proprietary Morningstar Direct data with the hope of finding ideas that aren’t well-studied, unlike household names like Alibaba Group (09988) and Tencent Holdings (00700).
We decided to look through the lens of top-rated portfolio managers in Chinese equities and have a glimpse of what they have bought in the past couple of months.
This isn’t a full list of their buy, hold, and sell orders, but this will certainly be a rich compilation of stock ideas from the brightest minds in the market.
The First Bucket: The Digitisation of Information
Fund managers are scooping up shares in media companies, from an advertising house to a financial information platform.
Since December, JPM Greater China had been adding to its position in Focus Media Information Technology (002027), an agency that operates both out-of-home advertising, like digital signage screens, as well as online ads, in China. The additional shares appeared in February, topping up 2.2 million shares in total.
Schroder ISF Greater China and Value Partners Classic Fund join the game of digitisation of information. They choose to bank on a financial and stock information website, East Money Information (300059). For Value Partners Classic, East Money easily slides into the top 10 holdings after the fund’s splurge on almost seven million shares during the fourth quarter of 2022. The fund remains adequately exposed to the stock through the end of March. Ranking sixth by portfolio weighting, the stock represents 4.8% of the $1 billion fund.
In Need of Entertainment
If Tencent’s booming ad sales and gaming revenue is any indication or validation of a recovery, the entertainment market is set to have a better year than last. To put the data into perspective, Chinese households saved a whopping RMB 17.8 trillion in bank deposits in 2022 alone, which equals roughly 15% of the country’s GDP. The amount of savings lay a solid foundation for discretionary, recreational pursuits.
Schroder ISF Greater China favors entertainment and media companies, for example. Video-sharing platform Bilibili Inc (BILI, 09626) and music-streaming app Tencent Music Entertainment (TME) made to the list of 14 unique stock additions in December.
The house’s onshore-stock strategy, Schroder China Equity Alpha also topped up its holdings in Mango Excellent Media (300413) in March. Its content platform brand, Mango TV, is a Chinese equivalent to Netflix (NFLX), that provides entertainment and drama series in a subscription package.
More Consumption Plays
Aside from stay-home entertainment, domestic travel is another area Chinese consumers want to spend on. According to Morningstar estimates, domestic flight capacity at the country’s leading airlines will be ahead of the original expectations and is forecasted to soon surpass their 2019 levels.
A common pick by medallist managers is perhaps also taking aim at that boom. Hotel chain operator H World Group (HTHT) is liked by China equity fund managers. Value Partners Classic Fund added a total of 134,640 shares in the fourth quarter. After trimming the exposure to H World in the previous quarter, the JP Morgan fund added back roughly 100,000 shares in the first quarter of 2023.
We still find traces of the reopening theme in the medalist portfolios. For example, other than apps, another major addition for the last quarter of 2022 was Cathay Pacific Airways (00293).
The search also surfaced two other less-known stocks in Taiwan. King Slide Works (2059), for example, was bought by Value Partners Classic Fund. The name may not be a regular top holding on a Greater China equity fund factsheet but it appears in local furniture stores like Home Depot frequently. Headquartered in Kaohsiung, the company manufactures rails and hinges, and other home furniture fittings.
FSSA Greater China Growth and JP Morgan Fund like Nien Made Enterprise (8464). While the former chose to buy and hold the stock, the latter newly added to the shares in February 2023. Also from Taiwan, Nien Made sells customised shutters and smart drapes.
Chinese Property: Back from the Brink?
Unlike the other groups, property developers and managers are far better known in the investment arena, for both good and bad reasons. They became widely unloved by the market for some time after the sector’s debt saga unfolded.
Market observers have shifted their focus back to a growing urban population in China and their need for quality services in their residences. These fundamental factors have encouraged property developers to spin off their property management subsidiaries. The group has also become a crossover holding in a few large China equity portfolios.
In the fourth quarter, Value Partners added 1.3 million shares in Poly Property Services (06049) while UBS China Opportunity reported a net addition of more than 3.6 million shares in Onewo Inc (02602), the property management unit owed by developer China Vanke.
Not all managers buy the story, however. Another medalist portfolio manager that we cover, Martin Lau of FSSA Investment Managers, has a contrarian view towards the growth in property management services. He chooses to resist the hype for property management companies. By nature, property management service is a labour-intensive business and, arguably, faces high employee turnover, he says. The fervour for the entire sector makes Lau skeptical.
"One time I looked up around 30-odd Chinese property management companies on Bloomberg. As I found that their aggregate market cap outsized their developer parents’, that raised some red flags," says Lau.
What About Property Developers?
UBS China Opportunity isn’t merely a fan of Vanke’s property management arm Onewo, but also of the development parent China Vanke and the broader sector. Compared to its medallist peers, the UBS fund is perhaps one of, if not the most, steadfast in the property development sector.
In its short list of eight additions in December, four of them are Chinese property developers. They are China Overseas Land & Investment (00688), China Resources Land (01109), China Vanke (02202), and Longfor Group (00960).
The restructuring of some failed companies in the debt-laden industry is still underway. However, equity and bond managers haven’t shunned those "survivors" through the waves of defaults. Value Partners is another investor in China Vanke, adding 4.5 million shares in the stock in the fourth quarter of 2022. Meanwhile, JP Morgan made a net addition of China Overseas Land & Investment, with a purchase of roughly 700,000 shares.
