Wild Ride for Top Manager Shows Challenges in China Shares

(Bloomberg) — For Joy Young, who runs one of the top-performing funds invested in Chinese stocks, 2021 hasn’t been easy.

The founder of Shenzhen Infinite Fund Management Co. watched as this year’s gains in her Infinite Native Gold No. 9 fund soared as much as 84% in April. But by early May, those returns halved before they worsened to 31% as of June 18. That reflected her bets on a few stocks, including a starch-sugar producer that performed poorly after reporting earnings in April.

The wild ride for her portfolio underscores how difficult 2021 has been for professional investors in mainland stocks. Private funds in China on average returned 5.4% in 2021 as of the end of May, versus a gain of 43% for the whole of 2020, according to data from Ge Shang Wealth Advisory Co.

“For me, market conditions this year are the most challenging in the last three years,” Young said in an interview. Young’s portfolio is still among the top 2% of more than 15,000 stock-focused funds in the country tracked by Shenzhen PaiPaiWang Investment & Management Co.

China’s $12 trillion stock market has been whipsawed in recent months by authorities’ attempts to rein in speculation and a swift clampdown on the nation’s biggest tech companies. After a euphoric runup to a near record high in February, shares plunged into a correction in early March.

A slump in former heroes such as liquor giant Kweichow Moutai Co. has hamstrung dozens of mutual funds that piled into the same handful of stocks, prompting a flurry of redemptions. Zhang Kun, one of last year’s hottest Chinese stock fund managers, turned into one of this year’s worst as his picks on the nation’s technology and education plays soured amid regulatory crackdowns.

Young founded Shenzhen Infinite Fund Management in 2015 and has since grown its assets to nearly 1 billion yuan ($155 million). She started trading stocks as a university student and worked for several domestic institutions in venture capital investments after graduation. Her Infinite Native Gold No. 9 fund, set up in August 2020, currently manages about 100 million yuan.

When her portfolio recorded a sharp, earnings-triggered correction in May, Young added more shares in the country’s consumer sector. More recently, she has shifted focus to cyclical sectors, betting on rising demand from a potential global infrastructure boom.

She said investors now have to select individual stocks from some high-growth sectors that are reasonably priced rather than betting on a broad market rally that was a sure win in recent years.

One of Young’s biggest bets was Zhejiang Huakang Pharmaceutical Co., a maker of sugar alcohol products. Weaker-than-expected earnings sparked a tumble of more than 40% in the stock since a peak reached weeks after its February listing. She has reduced the holding recently but remains optimistic on the stock’s long-term outlook.

Currently, one of Young’s biggest wagers is Lomon Billions Group Co., which produces titanium dioxide pigment, a bright white material that’s widely used in paints, sunscreens and ceramics. She said she expects the company to benefit from increasing global demand and to maintain a leading position in an industry disrupted by the pandemic.

She has also recently added cyclical stocks such as Zhejiang Huayou Cobalt Co., believing the economically sensitive cohort has a better chance to generate good returns in coming months.

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