Two of China’s top-performing fund managers see a rout in green stocks as overdone, holding on to their bets on the sector amid low valuations and the ongoing energy transition.
(Bloomberg) — Two of China’s top-performing fund managers see a rout in green stocks as overdone, holding on to their bets on the sector amid low valuations and the ongoing energy transition.
Valuations of renewable firms have hit a floor and the latest pullback provides a rare opportunity to buy some of the most competitive companies at a reasonable price, according to Cui Chenlong of Qianhai Kaiyuan Fund Management Co., who oversees over 28.7 billion yuan ($4.2 billion) across various portfolios.
Once investors’ darlings, renewable shares have turned into market laggards this year amid a rotation toward China’s state-owned enterprises and artificial intelligence names. Concerns over a brewing price war among electric-vehicle makers have also hurt sentiment.
For Cui, a pricing battle among EV manufacturers and overcapacity in the renewables supply chain are “inevitable” in high-growth sectors, and are issues that can be easily resolved with robust demand.
“There’s room for the EV sector to grow at least five times before reaching a phase of maturity,” he said, adding that the discounting will only help expedite the exit of fuel-based cars.
Cui’s First Seafront Public Utilities Industry Equity Fund has returned 188% in the three years through March 2023, notching the top spot among nearly 400 stock funds tracked by financial website East Money Information Co. It has lost about 1% this year.
His views are echoed by Lu Bin, who manages the HSBC Jintrust Low Carbon Pioneer Fund, which has returned 146% over the past three years.
A “negative loop” — as funds that had over-positioned on renewables lowered exposure, in turn leading to share-price declines and more outflows — are overdone, Lu said. His flagship fund’s three-year performance ranks fourth among peers tracked by East Money.
Eve Energy Co., which is among the top holdings for both Lu’s and Cui’s funds, has retreated 26% this year in the worst performance among CSI 300 Index members. Battery giant and sector bellwether Contemporary Amperex Technology Co. has lost nearly 2%, while the benchmark has advanced about 2%.
“There’s been sufficient venting of negative sentiment in the growth sectors, particularly in EVs and renewables,” he said. “There is potential for a sharp valuation recovery in growth stocks, and scope for a significant rebound in shares next quarter.”
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