100 Club: Greenberg hacks China weighting

The manager of the group’s £366m Global Emerging Markets fund said he now had just above 4 per cent exposure to the A-shares market of domestically listed shares, down from 11 per cent last month.

Mr Greenberg had already started trimming exposure before the recent bout of losses, but at the end of June he cut the weighting even more aggressively, from roughly 9.5 per cent to 4.5 per cent.

He said the move meant losses had been mitigated and his fund remained 4 per cent ahead of its MSCI Emerging Markets (Net of Withholding Tax) index year to date.

“I consider that to be a pretty good result given what happened and how overweight we were,” he said.

The Shanghai Composite index remained up by 79 per cent in the past year in renminbi terms last week. However, it has plummeted more than 26 per cent in the past month, data from FE Analytics shows.

Mr Greenberg said a key factor behind the market being pushed so high had been the amount of money investors were borrowing from stockbrokers – known as margin lending – to buy shares. This was in spite of macroeconomic data not providing a positive backdrop.

While the manager said margin lending had fallen by 20 per cent, it still stood at $280bn (£181.8bn). “It was a pretty binary situation,” he said.

“With the amount of margin debt that had built up, it was either going to keep going or it was not. It was unlikely to just sit there and be stable.”

The big drop in markets effectively forced the manager to reduce his exposure to stocks he liked because of the fear the market would “overwhelm” them.

In spite of the cuts to his A-shares exposure, Mr Greenberg remains 2 percentage points overweight his benchmark.

The massive shift in China’s stockmarket also “calls into question” the country’s strategy of shifting the emphasis of its economy away from fixed asset investments towards one that was more market led, the manager added.

“With the bubble and the bursting of the bubble, we are starting to wonder whether this will be possible,” he said.

“And in terms of progress on policies announced in the Third Plenum [which in 2013 saw the most senior members of the Communist Party outline their long-term economic goals], not much has really been happening.”

Mr Greenberg also reacted to the move by many companies in China to suspend their shares amid the market falls.

The Financial Times quoted the Securities Times, a paper published by the Shenzhen Stock Exchange, which said 760 companies — more than a quarter of all A-shares-listed companies on the Shanghai and Shenzhen exchanges — had suspended trading in the past week.

Late last week this rose to nearly 1,500 stock suspensions – or more than 50 per cent of all listed companies on China’s two main exchanges.

Mr Greenberg said this was “disappointing” given he was eyeing some of the stocks as opportunities but also because he saw it as “interventionist and wrong”.

“It would have been better to let things go down to wherever they went down to and then you have creative destruction,” he said.

“Equities then become cheap, price-to-earnings ratios fall lower, the cost of equity goes up and then you get real bargains and people invest.”