Thursday 30th April 2020
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The current stability in Chinese stocks isn’t luring Pan Yue, who is waiting for the Shanghai equity benchmark to fall a further 25% before she’d consider stepping back in.
Pan, a fund manager at Winbro Asset Management Co. in Beijing, is holding 80% cash and 20% bonds in two equity-focused funds that she oversees. She sold all her stock positions before the Lunar New Year holidays began in late January amid concern the spreading coronavirus outbreak would weigh on the market. The Shanghai Composite Index has dropped by about 5% since the holidays started.
One of the funds Pan managed last year at her previous employer -- Beijing Jinghong Investment Co. -- returned 90% for investors between January and November when she changed firms, according to Simuwang.com, a Chinese financial-data provider. The Shanghai Composite Index rose 18% in the same period. The two Winbro funds she now manages, which target a select group of clients, both returned around 7% this year as of Monday, according to an internal document seen by Bloomberg.
“Those who at this point still expect a V-shaped recovery would be displaying optimism fueled by ignorance,” said Pan of markets and the wider economy, from her home in the Beijing suburbs where she has stayed since the virus outbreak. She manages about 200 million yuan ($28 million).
“I don’t think a drop of 10% from this year’s peak is enough for some to be calling a bottom,” she said. The Shanghai Composite Index should be “reaching approximately the 2,100 level before I’m willing to call a bottom and start buying.” Making bets now could yield a 10% upside, but the chances of a drop are much higher, she said.
A decline back to 2,100 would take the index to a level last seen in 2014. The gauge, which hasn’t fallen into a bear market unlike benchmarks in other major global equity exchanges, has risen 2.7% this month as of Wednesday, on pace for its first gain for the year.
Pan’s case is predicated on earnings deteriorating further, with the impact of the coronavirus lasting as long as three years. Stimulus announced by the Chinese government won’t return the country’s economy to the same pace of expansion as before the pandemic, according to Pan.
“The shock to earnings may only show up in the second or third quarter,” she said. “We don’t have to have fabulous growth of around 6% each year -- that’s not what the polices are aiming for. But that also means we need to start getting realistic in pricing stocks.”
— With assistance by Sharon Chen, and April Ma
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