People wear face masks inside a train in Beijing, China, 03 January 2023. (Photo: EPA-EFE / Mark R Cristino) The Man Group unit, which oversaw $24-billion globally at the end of the third quarter, switched to a positive view on China between September and October, said Andrew Swan, its Asia ex-Japan equities head. It’s focusing on a limited set of opportunities, including travel, entertainment, insurance and industrial automation shares, where China’s reopening could lead to positive earnings revisions that have yet to be priced in.
“We certainly are not of the view that this is a strong, V-shaped recovery,” Swan said during a telephone interview from Sydney. “It’s going to be a shallow recovery because China still has to deal with a very large buildup of debt and the lack of fresh, sustainable economic drivers over the medium- and longer-term.”
Beijing’s abrupt drop of Covid-Zero policies buoyed markets, underpinned by expectations of consumption and production growth. A Eurekahedge Pte measure of China stock hedge fund performance jumped 24% in the three months through January, four times that of the global average.
Swan’s team manages money in long-only investments and hedge funds. Those include Asia-focused vehicles and money from other Man GLG funds. He declined to comment on performances of the hedge funds.
The $51-million Man GLG Asia-Pacific ex-Japan Equity Alternative Fund returned an annualised 5% since it started in late 2020, according to data compiled by Bloomberg. A Eurekahedge gauge tracking performance of hedge funds focused on regional stocks was flattish during the period, as Beijing tightened its grip on the private sector while maintaining strict Covid controls.
Swan is cautiously optimistic on China’s rebound. “You get this one-time benefit of opening up as people normalise their lives,” he said. “It’s not the start of a new cycle per se.”
With a lack of western-style Covid-era stimulus, household wealth in China hasn’t increased much, meaning the current “revenge spending” is likely unsustainable, he said.
Swan favours travel and restaurant operators, alcohol makers, Macau casinos, and insurers in both the mainland and Hong Kong, he said, declining to identify the stocks. He also likes industrial automation companies recovering from production disruptions and component shortages during Covid. Their earnings can top the broad economic growth rate and expand regardless of the stage of the cycle, he said.
For bearish bets, Swan is focusing on consumer staple companies boosted during Covid lockdowns. He says market expectations for dairy stock earnings could be overly optimistic. Technology hardware businesses, including producers of computers, screens and laptops, will suffer from a supply glut and weak demand after the Covid boom, he added. BM/DM