Tencent and Kweichow Moutai among top Chinese fund managers stock choices after the market reopening

As the end of Covid-19 restrictions promised to revive household spending and sell-offs last year made equities more appealing, China's largest fund manager flocked to consumer stocks.

Tencent Holdings, liquor producers Wuliangye Yibin and Kweichow Moutai, and dairy producer Inner Mongolia Yili Industrial Group were among Zhang Kun's top 10 holdings as of the end of 2022, according to the annual report for his flagship fund, the US$8.3 billion E Fund Blue Chip Selected Mixed Fund, which was published on Thursday.

Zhang is the largest asset manager in China's 27 trillion yuan (US$3.9 trillion) mutual-fund sector, managing four funds with a combined US$13.1 billion in assets for Guangzhou-based E Fund Management.

His preference for consumer bets is in line with the government's emphasis this year on household consumption, which has led to the release this month of initiatives to encourage consumption in Beijing and Shanghai, including financial incentives for the purchase of electric vehicles and environmentally friendly appliances.

Since its low in October, a sub-gauge of consumer-staple stocks—which includes Kweichow Moutai and Yili—has increased by almost 30%, making it the second-strongest sector group on the CSI 300 Index.

According to Tan Zhuo, an analyst at China Merchants Bank in Shenzhen, "Consumption is expected to recover to the pre-pandemic level as we have seen a mild recovery in household incomes, an improvement in the job market, reopening and all the consumption-boosting measures."

The bank anticipates that yearly retail sales will rise by 9%, picking up from the 3.5% growth seen in the January-February period.

Blue-chip fund managed by E Fund Management saw value drop by 16% last year, less than the CSI 300's 22% decline. Zhang credited the superior results to his continued investment in businesses that can produce secular earnings growth.

Zhang stated in the yearly report that "the stock market suffered from bouts of swings and declines in 2022. For each significant market decline, stocks are up for ‘discount sales’. It’s not a good option to refrain from buying into a company with long-term profitability, or even sell it, simply because of worries about the change of the economic situation in the short term or hedges against market fluctuations."

According to the report, Zhang bases his stock selections on a company's per-share earnings, free cash flow growth, and "moat," a word used in the industry to describe the competitive advantage it has over competitors.

Additionally, he employs a buy-and-hold strategy, emphasizing that frequent dealing drives up transaction costs and reduces incremental returns. According to the report, trading expenses including stamp duty paid by investors totaled 400 billion yuan in 2021, or about 8% of the overall profits made by listed businesses on the onshore market.

Tencent Holdings, with a 9.9% stake, was the fund's biggest investment at the end of 2022. According to the report, the distilleries Wuliangye and Jiangsu Yanghe Brewery Joint-Stock came in second and third, respectively.

According to estimates by the Post, Zhang made minor adjustments to his portfolios in the fourth quarter, selling 1.1 million Tencent shares and buying 210,000 Kweichow Moutai shares.

The blue-chip fund's net asset value has grown by 0.7% thus far this year, falling short of the CSI 300's 4.3% gain.

By fLEXI tEAM