Profiting From Trade War, China Fund Jumps 54% in First Year

(Bloomberg) --

Xu Xiaoyong has returned 54% for investors during his fund’s first year by hunting for stocks that can thrive despite the challenges facing China’s economy.

That means buying liquor firms supported by resilient consumers or betting that domestic tech suppliers will see more demand from larger companies as a result of the trade war, encouraging innovation, said Xu, investment director of Changan Fund Management Co.

Xu started his Changan Yulong Flexible Allocation Mixed Fund in September last year, a few months before China’s equity market began recovering from a sell-off. While it’s still early days, it is beating 99% of more than 2,500 peers tracked by Bloomberg.

Xu’s top 10 holdings at end-June included liquor makers Kweichow Moutai Co. and Wuliangye Yibin Co. as well as telecom equipment manufacturer ZTE Corp. and WUS Printed Circuit (Kunshan) Co., according to the fund’s quarterly report. Those four stocks have jumped more than 73% this year, compared with less than a 20% gain on the Shanghai Composite Index.

“We’ve seen some sizable gains in these stocks this year, but there remains huge room for them to grow their business over a three-to-five-year horizon,” said Xu, who has been managing money for more than a decade. “These stocks are worth holding on to.”

Xu said he has added electronics shares this quarter, and is poised to boost exposure to consumer and tech sectors in the event of a correction. While consumer shares will benefit from growing household expenditure, the trade war will prompt tech giants like Huawei Technologies Co. to seek suppliers at home, he said.

To be sure, signs of a worsening economic slowdown are appearing, with industrial output expanding in August at the slowest pace for a single month since 2002 and retail sales missing expectations. The trade dispute also continues to simmer.

Still, Xu said he is committed to investing in China’s equities. “I see plenty of investment opportunities in this market,” he said. “As a fund manager I focus more on stock picking and delivering absolute gains through a group of handpicked shares than paying attention to macro factors.”

©2019 Bloomberg L.P.