Fund manager turns bullish on mainland stocks

A fund manager who made triple-digit gains by hedging Chinese equities has now turned bullish on mainland shares.

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The fund of the 500 million yuan 75 million Shenzhen Qianhai JianHong Times Asset Management Co. returned 138% so far this year s tumbling market. Her bets on infrastructure, energy producers and Covid 19 drug makers helped boost gains, while she remained neutral about the renewed lock-downs in China and Ukraine.

The 41-year-old veteran said she s beginning to place more bets on a recovery expected over the next two to three months, as local outbreaks stabilize. Her pivot underpins a larger shift among China stock investors who say that the deep pessimism that had engulfed the market appears to have peaked. There is a chance that the growth-lifting stimulus coupled with the easing of the weekslong lockdown in Shanghai is helping turn that tide.

In an interview last week, we unwinded some of our short positions because there is a clearer time line on Shanghai returning to normalcy of life and as the US inflation expectations are edging lower, Zhao said last week. We are watching a new China flare-up and a change in Covid policy before we can become more bullish. China's CSI 300 Index has gained 1.5% this month, which is a rare major stock benchmark index in the world that is in the green for May. It still lags the regional benchmark, after falling more than 17%, year to date.

Zhao oversees Yingfu No. According to fund tracker Shenzhen PaiPaiWang Investment Management Co, the 4 fund ranked first among more than 20,000 private-fund peers on the mainland this year. It has remained in the top 10 best performing funds over the past 12 months.

The fund has increased its net-long stock position to about 60% of its investments. During an upcoming relief rally, consumer discretionary shares, especially autos and suppliers, could benefit most, according to Zhao. She is keeping tabs on a proposal by the European Union to ban Russian oil to gauge inflation implications.

There is a pickup in foreign inflows and leveraged trades, with the latter surging to the most this year this year, as evidenced by signs of a turning point in China stocks.

There is a chance that we have come to a point where a recovery in earnings has been affected by Covid and the valuations are both working toward a turnaround in stocks, said Zhao, adding that she will increase exposure in the coming weeks if daily trucking traffic and northbound flows signal a turn for the better.

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