A NEW YORK-BASED emerging markets equities fund that has outperformed most of its peers has been adding to its Chinese stock holdings in recent months, as it deemed this year’s relentless selling to be overdone.

Pzena Emerging Markets Value Fund boosted the weighting of Chinese mainland and Hong Kong stocks to around 33% of its portfolio in the third quarter, up about four to five percentage points. That compares with 29% in MSCI Inc.’s gauge of emerging markets.

“The indiscriminate selling of Chinese stocks has increased the value opportunity,” Allison Fisch, a money manager at the US$1.5 billion fund, said.

“We’ve been taking advantage by buying up companies we believe are exceptionally cheap relative to their normalized earnings power.”

The fund is the latest example of some money managers’ buying Chinese stocks on a tactical basis as policymakers increasingly pursue measures to loosen liquidity and restore consumers’ confidence. The MSCI China Index is down more than 14% this year, losing more than half of its market value from a peak in 2021.

The index is trading at 10.2 times its 12-month forward earnings, lower than its five-year average of 13.5 times.

Pzena added commercial lender China Merchants Bank Co. and WH Group Ltd., one of the world’s largest pork companies, to its portfolio in the third quarter.

Prices of the meat, a Chinese staple, have fallen to their lowest since April 2022. Investors have also shunned banks on concern over rising bad loans amid slowing economy.

Pzena’s decision to turn overweight goes against the consensus, with exposure by the top 100 emerging market funds to the Chinese mainland and Hong Kong falling to the lowest level in five years in the third quarter, according to the BI report, written by Marvin Chen and Sufianti.

Fisch’s fund has outperformed 97% of its peers over the last three years.

(SD-Agencies)