Chinese Hong Kong-focused funds hit by plunging stock prices

Many Chinese public funds that invest in Hong Kong stocks have suffered huge falls in net asset value since the start of the year, but some are still betting on a rebound amid China’s widening decoupling from US capital markets and a boost in liquidity from China’s central bank.

E Fund Management’s CSI Overseas China Internet 50 Exchange Traded Fund was the hardest hit of all onshore qualified domestic institutional investor funds that invest exclusively in Hong Kong stocks. Its net asset value has plunged more than 40 per cent since January, according to Wind data.

It is followed by China Southern Fund Management’s CSI Hong Kong Technology ETF, which has seen a dip of almost 26 per cent since the start of the year.

The third-worst performing onshore fund scheme is the Yinhua Hang Seng China Enterprises Index Securities Investment Fund from Yinhua Fund Management, which dropped about 25 per cent over the same timeframe.

This article was previously published by Ignites Asia, a title owned by the FT Group.

Of the 37 existing onshore QDII fund schemes that invest solely in the Hong Kong market — where different fund share classes are counted as separate — all except three have seen a reduction in NAV since the start of the year. The average decline stands at about 17 per cent.

In addition to QDII funds, several onshore mutual funds that are also heavily exposed to Hong Kong stocks have recorded similar declines in value.

China Universal Asset Management’s Hong Kong Advantage Selected Fund has tumbled almost 26 per cent since January, while TruValue Asset Management’s Hong Kong Stock Connect Big Consumption Selected Fund slid almost 21 per cent.

China International Fund Management, JPMorgan Asset Management’s China fund joint venture, has also seen its Hong Kong Selected Hong Kong Stock Connect Fund drop almost 20 per cent.

As of December 6, Hong Kong’s flagship Hang Seng index had dropped 14.3 per cent since the beginning of the year, the worst among major benchmarks across the world. The Hang Seng Tech Index has plunged 32 per cent since January.

But despite weak market sentiment and the ubiquitous drop in value, Chinese investors have been undeterred.

Between November 24 and December 6, the Hong Kong bourse saw an aggregate net flow of HK$16.2bn ($2.1bn) from the Shanghai and Shenzhen exchanges via the stock connect schemes.

Likewise, while the E Fund CSI Overseas China Internet 50 Exchange-traded Fund lost two-fifths in NAV, its fund shares had increased by 20.9bn in the year up to Friday last week, suggesting solid investor confidence.

Analysts believe that instead of suffering an across-the-board correction, Hong Kong stocks have been mixed, presenting funds and investors with an opportunity to buy low.

“Global markets have been volatile in recent weeks, with the new coronavirus variant, the hawkish turn of the US Federal Reserve, the economic downturn in China, the squeeze in offshore liquidity and the changing Sino-US relations all contributing to a sell-off in Hong Kong-listed Internet stocks,” said Hu Yaosheng, a portfolio manager at TruValue AM.

“But there isn’t a big systemic risk and quite a number of companies are extremely undervalued,” added Hu.

*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.

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