While the rest of the world scrambles to get out of the crumbling Chinese stock market, a trickle of investors is heading straight into the wreckage.
Managers of Chinese stock mutual funds have seen huge drops many times before. Instead of taking cover, and preserving cash in their portfolios, this time these managers are buying stocks of companies set to take advantage of how the government is reshaping the economy.
This most-recent plummet has been even swifter and sharper than past ones, but managers of Chinese stock funds say it’s also brought down share prices enough that they’ve been buying companies that they thought were too expensive just a few months ago.
“With a volatile market like China, buy it when the world hates it and sell when no one’s worried,” says Jim Oberweis, who runs the Oberweis China Opportunities fund. “That’s worked pretty well over the last 20 years in China.”
Only time will tell if he and other Chinese stock fund managers are right.
The MSCI China index has had seven declines of at least 10 percent over the last five years, including the 19 percent tumble since late October, which itself followed a 34 percent plunge from April into September by just weeks. After all those ups and downs, the MSCI China index has lost 12 percent over the last five years and is close to its lowest level since 2009.
That’s why fund managers say an investment in Chinese stocks will require lots of patience, maybe even a decade.
China’s economy grew last year at its slowest pace in a quarter century, and economists expect it to slow even more this year. Part of that is by design. The Chinese government is steering the economy toward consumer spending and away from exports and investments in infrastructure. It hopes that will yield a more sustainable, though slower, rate of growth.
The goal is to try to slow growth without stopping it. The worry is that the government will lose control of the slowdown, and the economy will fall hard.
“It’s painful at the moment, and there could be some more pain to come,” says Jasmine Huang, manager of the Columbia Greater China fund.
Huang is avoiding companies from what’s known as “Old China” and owns no raw-material producers and few companies in the industrial and energy sectors.
She has been investing in “New China,” focused on e-commerce companies, where she expects revenue to grow even if the overall economy stumbles because more Chinese shoppers are going online.
She also sees big growth for health care companies. They make up only about 2 percent of the MSCI China index, and she says they could grow to become the 10 or 20 percent of the market that health care represents in developed markets.
Andrew Mattock, lead manager at the Matthews China fund, has steered his fund toward stocks that he sees profiting from China’s shift toward consumer spending. His top holdings included Tencent, which operates the popular WeChat social media service, and , one of China’s largest e-commerce sites.
