China’s best-performing fund strikes gold in nascent Beijing bourse for start-ups

China’s best-performing mutual fund of 2023 sees more gains in the volatile corner of the market where it derived enough upside to beat its more than 7,000 competitors last year.

The fund, whose mandate requires it to invest at least 80 per cent of its equity assets in stocks listed on the nascent Beijing Stock Exchange, returned 59 per cent in 2023 even as broader Chinese stocks slumped due to a slowing economy and property crisis.

“Investing in the Beijing exchange is like sprinting on a high-speed rail,” said Gu Xinfeng, a fund manager at China Asset Management in Beijing, who oversees the ChinaAMC BJSE Innovative SME Selected 2Y Regular Open Mixed Launched Fund. “Many investors are still confused about the Beijing rally, its been swift, gains have been immense, but money is gushing in.”

The fund’s almost 60 per cent return for 2023 compares with the 15 per cent gain for the Beijing Stock Exchange 50 Index, which tracks the shares considered the most representative on the gauge, and the 11 per cent slide in China’s benchmark CSI 300 Index. Most the 7,337 onshore Chinese mutual funds lost money last year, according to data compiled by Bloomberg.

The main reason the Beijing exchange did so well was a policy package announced in September pledging to allow firms on the bourse to transfer their listing to other exchanges and lowering trading requirements for investors, Gu said. The Beijing bourse only began in 2021 as a financing channel for early-stage companies with innovative potential.

Chinese stocks have a good chance of bouncing back this year as most gauges have fallen so much, and the Beijing exchange is likely to amplify any potential gains, Gu said.

Enduring pain: 90% of China equity funds suffer as US$1 trillion of value erased

“While some Beijing stocks may be overbought, the upside overall is not over and the Beijing Stock Exchange 50 Index will probably oscillate higher over the coming six months,” he said.

Gu’s fund, which had 404 million yuan (US$56 million) of assets at the end September, has a slightly unusual format, being only open for subscription and redemption for a few days every two years.

The fund was last open for investors in early December, and they scaled down some of their holdings over the period, possibly due to the long lock-up requirement, Gu said. The next window for subscription and redemption isn’t due until December 2025. The investment mandate also includes putting at most 20 per cent into Hong Kong stocks and at least 5 per cent in cash and government bonds during its open-end period.

Gu, who also manages a non-Beijing exchange mandated fund, says he has been switching out some Shanghai- and Shenzhen-listed companies from that fund and replacing them with Beijing-listed stocks.

The top holdings of the fund included car parts supplier Suzhou Junchuang Auto Technologies, bearing producer Suzhou Bearing, and Kopper Chemical Industry, which makes a substance used in the recycling of EV batteries as of the end of September. The three rose at least 25 per cent each in the fourth quarter.

The success of the Beijing bourse is attracting more asset managers to start researching and investing in the start-ups, he said.

“Many fund managers that are looking at Beijing exchange firms did not set out to chase opportunities on the board, but stumbled across the companies when looking for the leaders in a niche sector,” Gu said.