(Bloomberg) -- China’s best-performing mutual fund isn’t buying the market’s reopening euphoria, and is instead sticking to value stocks on a bet the economic recovery will remain weak in 2023. 

The recent rally suggests expectations have gotten ahead of reality, Huang Hai, who manages the Wanjia Macro Zeshi Multi Strategy Flexible Allocation Fund, said in a group media interview on Friday. Sectors that have priced in high expectations — such as tourism and liquor producers — may see some pullback if earnings disappoint through the first quarter, he said.  

The fund has returned 57% this year through Monday to top more than 9,000 Chinese mutual funds and hybrid products, according to data compiled by financial website East Money Information Co. The median return for peers is around 20% loss, according to the website. 

Huang’s view reflects a degree of caution as China’s abrupt Covid Zero pivot looks set to unleash a massive outbreak. While the nation will eventually overcome the pandemic, the process won’t be without hurdles and market volatility will persist for now, he said.

“We are more positive on value stocks such as financials,” he said. Huang also likes energy shares including coal, oil and gas, which he sees as beneficiaries of China’s push to stabilize growth. 

Value Bets

The latest quarterly filing by the fund, which has more than 1.8 billion yuan ($258 million) in assets, shows its main positions include value shares with relatively high dividends and solid earnings. The top three holdings at the end of September were CNOOC Ltd, Shanxi Lu’an Environmental Energy Development Co., and Shanxi Coking Coal Energy Group Co. 

While delivering huge returns for the year, the fund by Wanjia Asset Management Co. has posted a less than 1% gain over the past month even as the broader market rallied.  

China’s benchmark CSI 300 Index has jumped more than 10% since the end of October amid progress toward reopening and policy support for the ailing property sector, trimming the year’s loss to around 21%. The best stock performers in the latest upswing include reopening beneficiaries such as Luzhou Laojiao Co. and China Tourism Group Duty Free Corp., and developers like Seazen Holdings Co.    

“We are more positive about performance in the second half” of next year after the conclusion of the Two Sessions, said Huang, referring to the annual political summit of the country’s top legislators usually held in March. 

Property Caution 

On property, the mutual fund has reduced the weighting of the sector in its portfolio, according to its quarterly filing. Gemdale Corp. was the only property name in the fund’s top 10 holdings as of end-September. 

Chinese authorities have been beefing up support for developers in recent months, seeking to put a floor under the property crisis that’s been weighing on the economy. 

At a two-day Central Economic Work Conference that wrapped up last week, officials pledged to support consumer demand for better housing, ensure stable growth in the sector, and meet the financing needs of property companies. 

“There could be more property policies but markets may have priced in the most positive expectation,” Huang said. “High-quality companies still have great prospects if they can stabilize” factors such as sales, land acquisition and cash flows, he said, noting the fund will need some time to watch sales recover.  

--With assistance from Mengchen Lu and April Ma.

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