UBS China Fund plunges

UBS’s $10bn China Opportunity Fund has taken a hit following the country’s recent crackdown on the technology sector.

Bin Shi, who heads up China equities at UBS, has previously been positive on the prospect of Chinese equities, even suggesting at a fireside chat last month that the worst was over in terms of penalties on Chinese tech companies.

So much was Shi’s confidence that the fund acquired a number of high-quality A-share titles listed in Shanghai and Shenzhen.

Shi has an esteemed reputation within his sector, which is why investors heed his advice, and why he oversees four different vehicles focusing on Chinese equities, the biggest being UBS’s China Opportunity Fund.

The China Opportunity Fund is a standout fund at UBS, with $14.4bn worth assets under management at the end of 2020. Over the past five years it has returned over 12% on an annualised basis.

Shi himself is highly rated in the industry, while the fund has previously been given five-star rankings.

However, things can change quickly, and they have.

A-shares are nosediving, as are Chinese securities listed abroad.

The fund is down by more than 20% overall in 2021, while Morning Start took a star away in July.

It is behind its benchmark the MSCI China Index, as well as a number of its competitor funds.

Shi, it seems, came unstuck betting big on companies specifically impacted by the crackdown by the CCP.

The fund is overweight in financials compared to its peers, with Tencent making up close to 10% of its portfolio. Alibaba and Ant, which is being broken up by the government, comprise 5.74%.

Another sector the Chinese government is going after is insurance, and the fund took a hit there too, with 5.29% of its portfolio allocated to Ping An, one of the country’s largest insurers.

The question now is does UBS stay all in on its China bet, having been one of the earliest in the door.

Xi Jinping is clearly reluctant to relinquish power, and the impact of his leadership on Chinese equities over the long-term remains to be seen.

As if the existing tech crackdown wasn’t sufficient, China’s embattled developer Evergrande is on the brink of looming default.