(Bloomberg) -- A top-performing Chinese fund manager, who has beaten peers in a roller-coaster year for local shares by focusing on state-owned firms, is still bullish on the cohort due to their low valuations.
“The valuation of state-owned companies is just like property prices in the year 2000 — outrageously low,” Lin Bo, founder and fund manager at Fujian Gunxueqiu Investment Co., said in an interview. The sector has “large upside potential,” he said.
Lin’s Fuying Gunxueqiu No. 1 Fund is up 66% so far in 2024, and ranks in the top 3% among 1,203 private-fund products over the past 12 months, according to data from Shenzhen PaiPaiWang Investment & Management Co. By comparison, China’s benchmark CSI 300 Index has risen 14% in the period through Thursday.
The Fujian-based company, which has about 5 billion yuan ($689 million) in assets, attributes its performance to investments in Hong Kong-listed state-owned enterprises. While the broader market has rebounded following Beijing’s stimulus blitz in late September, these companies have been of particular focus thanks to targeted government support including high-quality asset injections and valuation-boosting guidelines.
READ: Chinese Stocks Rebound on Guidelines to Boost Shareholder Value
The Fujian Gunxueqiu fund manager’s views are shared by Shanghai Banxia Investment Management Center, an influential Chinese hedge fund, whose founder said last month its positions are concentrated in state-owned companies that will benefit from the property sector’s stabilization.
The Hang Seng China Central SOEs Index has rallied 18% year-to-date, outpacing the Hang Seng Index’s 15% advance. The SOE gauge trades at a one-year forward price-earnings ratio of 6.1, significantly below the main equity index’s 8.9.
Lin predicts the cohort will rise above their net asset value, with price-earnings multiples expanding to around 15. “They have upward trend — policies only made the rally come sooner.”
While Lin does not favor any particular sector, the fund manager said valuations for infrastructure firms and banks look “attractive”. H-share SOEs have more “upward potential” than their A-share counterparts, thanks to their lower valuations, he said.
©2024 Bloomberg L.P.
