(Bloomberg) - Dawid Krige is putting on a brave face after his Greater China long-only fund lost 56% of its value since 2020.
“Investors in China have been staring into the abyss recently,” Krige told investors in a March newsletter seen by Bloomberg. “The prospects for our portfolio have seldom been better.”
Companies in his $1.1 billion Cederberg Greater China Equity fund will probably post annual earnings growth in the high teens over the next three to four years, Krige wrote. With China likely to become the world’s largest economy within a decade, investors can also count on dividend increases to drive healthy long-term returns, even if sentiment and valuations stay depressed, he said.
China-focused fund managers are nursing growing losses amid a rout that has left valuations close to 2008 levels. International investors have been especially jittery, pushing the Nasdaq Golden Dragon China Index down almost 70% over the past 14 months.
“These fearful, uncertain times are when long-term investors should back up the truck,” said Krige, who has been investing in Asia and emerging markets since early this century.
Krige and his investor-relations team at the London-based firm didn’t immediately answer emails seeking comment.
Chinese stocks have been under pressure from regulatory changes, geopolitical tensions, fresh Covid outbreaks, credit tightening in the property sector and global inflation fears. Investors including hedge-fund founder Paul Marshall have questioned whether U.S.-listed Chinese stocks have become “uninvestable.”
While funds that trade in a broader spectrum of markets can redirect money elsewhere and hedge funds can offset bullish bets to some extent with bearish wagers, China-focused long-only managers can do little to cushion the pain.
Krige’s fund lost 23% in the first quarter. Its 43% decline last year was the steepest annual drop since it started in 2012, according data compiled by Bloomberg. Assets fell from nearly $2 billion in February 2021, suggesting investors have largely stood firm, the data show. The fund has gained an annualized 9% since inception, versus 7% among peers, the letter showed.
Krige blamed the poor performance on technology and offshore-listed stocks. The fund had negligible exposure to yuan-denominated shares traded in China and Taiwanese stocks, which have held up better. It has also been slow in cutting loss-making positions, he wrote.
Among its top holdings is China data-center developer and operator GDS Holdings Ltd., whose American depository receipts have tumbled more than 75% since February of last year. It also owns Tencent Holdings Ltd., the technology giant that’s lost more than half of its market value since January 2021.
Beijing “will pull several levers in the months ahead to ensure growth and stability” as Xi Jinping is set to start his third term as president later this year, Krige wrote. The country is in a position to cut interest rates as many other countries see hikes.
While long-term growth of China’s housing market is unexciting, property stocks owned by Krige’s fund are able to take market share from peers, he said. Even with its heavy reliance on Russian natural resources, China is unlikely to side openly with its northern neighbor on Ukraine to irk its major export partners in North America and Europe, he added.
“China’s best days lie ahead,” Krige wrote, saying he believes the country’s issues are transient and the fund is open to fresh money from existing investors. “When fear and pessimism are greatest, markets are often closest to a turning point.”
By Bei Hu and Nishant Kumar
