U.S. funds not bailing on China yet amid free-fall in stocks

Thu Jul 9, 2015 10:35am EDT
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By David Randall and Timothy Mclaughlin

NEW YORK (Reuters) - As the Chinese stock market free-fall shows no signs of stopping, some U.S.-based fund managers said the government's effort to prop up stock values is having the opposite effect, even as some buy at what they consider panic-driven prices.

The Shanghai Composite Index has tumbled by 32 percent since mid-June, wiping out about $3 trillion in market value and ending a rally that had previously seen the market double from its June 2014 low. In response, Beijing has cut interest rates and stopped the trading of thousands of stocks, preventing some shareholders from selling their positions in hopes of ending the downturn.

The measures have instead helped spread the rout to the Hong Kong-based Hang Seng index, whose listings of so-called H share companies are largely owned by foreign investors and trade at lower valuations, fund managers said.

"You've had some misguided efforts to cushion the selloff and that's ultimately led to the unintended consequence of making the situation worse," said Charles Wilson, co-portfolio manager of the $2 billion Thornburg Developing World fund who has been adding to his positions in Chinese consumer, internet and utility stocks over the last few days of the selloff.

The Hang Seng index fell 5.8 percent Wednesday, its biggest decline so far this year. The index is still up 5.8 percent for the year to date, while the Shanghai index is up 16.7 percent over the same time.

Reuters contacted several prominent mutual fund managers, including the $8.7 billion T Rowe Price Emerging Markets Stock fund, the $1 billion Columbia Global Equity Value fund, and the $76 million Morgan Stanley Global Opportunity fund, who all declined to comment. It's the widest selloff in China, home of the world's second biggest economy, since the global financial crisis of 2008.

While it is unclear what will happen when Chinese markets resume full trading, most fund managers and analysts expect there to be further losses as sell orders move through the market.

Beijing has moved to curb new listings and extracted promises from fund managers and brokerages to buy at least $19 billion in stocks to provide support for blue chip shares. In addition, the China Securities Finance Corp, the country's official margin lender for brokerages, has raised its capital base to 100 billion yuan ($16.1 billion) from 24 billion yuan, in order to stabilize markets.   Continued...

Investors look at computer screens showing stock information at a brokerage house in Shanghai, China, July 8, 2015. REUTERS/Aly Song