China manager Charlie Awdry has backed reforms to open up trading between Hong Kong and the Chinese stockmarket – which is restricted to foreigners.
The manager of Henderson Global Investors’ £427m China Opportunities fund has recently cut the number of holdings he owns below his lowest target level. Mr Awdry holds just 47 stocks at present, even though he usually aims to hold 50-70 companies in his portfolio.
However, the manager expects the number of holdings to rise soon, in part due to the Shanghai-Hong Kong Stock Connect, also known as ‘through train’, which will launch in October.
The scheme will allow foreign investors to buy Chinese shares listed in Shanghai, known as A shares, and equally allow Chinese investors to trade in more than 250 Hong Kong-listed companies.
Currently, foreign investors can only buy Yuan shares if they are deemed “qualified foreign institutional investors” (QFII), and even then they are limited in the amount they can buy.
Through the scheme, investors with or without a QFII will be able to buy as much as ¥13bn of Shanghai stocks per day.
Mr Awdry said he had been inspecting the companies that will be in the investment universe opened up by the new scheme.
“I think large caps in Shanghai are cheap,” he said. “The domestic retail investors do not like the big names – they are not sexy, but some of them are well positioned. They will offer some good opportunities.”
Elsewhere, the manager said he was cautious about the economic growth outlook for China and cited worse-than-expected data in August. Industrial production in the world’s second largest economy grew at its slowest pace since the financial crisis.
Growth in industrial production was 6.9 per cent, which was down markedly from the 9 per cent figure in July. The low figure led some market commentators to suggest China’s 7.5 per cent economic growth target for 2014 could be under pressure.
The manager said investors should not allocate to China merely because of its growth prospects, but should focus on picking the right companies.
He has been shifting back to value stocks and away from growth-orientated companies, and said he favoured stocks such as Shanghai Industrial Holdings, an investment holding company and China Railway, the national railway operator.
He has also revisited some property companies in his portfolio. He had sold out of the sector earlier this year but said accommodative policies in China had led to a boost for property companies.
The manager has produced a top-quartile return of 151.3 per cent since taking on the fund in June 2006, compared with the average return of 132.5 per cent from the IMA China and Greater China sector, according to data from FE Analytics.
He has also outperformed his benchmark MSCI Zhong Hua total return index, which has returned 147 per cent during Mr Awdry’s tenure.
The manager did, however, suggest his benchmark could change soon, because at present MSCI rules mean it does not include in its indices companies that are listed outside of a country covered by an index. MSCI is seeking feedback on potential reform by November 28.
At present, its Chinese indices do not include Alibaba, a Chinese company which is incorporated in the Cayman Islands and listed on the New York Stock Exchange.
The e-commerce business became the largest company to list its shares on the stockmarket earlier this month with a $25bn (£15.2bn) flotation.
