China fund beats 97% of peers by buying Pop Mart, dumping Moutai

Business Times

4 days ago

[HONG KONG] A 30-year-old Chinese fund manager is trouncing peers this year with a portfolio stocked with Gen Z-favoured names such as Pop Mart International Group, betting that new-age shopping trends can help his fund overcome the country's economic sluggishness.
Xie Tianyuan's Penghua Selected Return Flexible Allocation Mixed Fund has returned 24 per cent this year, ranking in the top 3 per cent among roughly 2,300 peers, data from fund tracker East Money Information shows. That's a turnaround from its recent past, when holdings in traditional sectors such as alcoholic beverages and farming dragged performance. A gauge for Chinese stocks listed in Hong Kong has risen 20 per cent this year.
The Shenzhen-based fund manager, who took over early 2024, wasted little time in replacing what was then the fund's top holding Kweichow Moutai, a baijiu distiller, with the maker of smash-hit Labubu dolls, Pop Mart.
His repositioning for the fund, which has about US$7 million in assets under management, reflects how cultural shifts – brought on by digital influence and youth spending – are creating opportunities for Chinese investors navigating broader challenges in the world's second-largest economy.
His conviction strengthened after witnessing the popularity of the toy maker's products in Thailand, which, he said, signalled 'non-linear growth with every metric showing breakout potential'.
Growing up immersed in Japanese anime culture – his desk is adorned with Dragon Ball Z figurines – Xie said he developed an eye for identifying promising characters or designs, called 'IP brands', by mixing personal fandom and online research. That he himself is demographically a member of Generation Z, the driving force behind China's new 'emotional spending' consumption trend, helps him understand what may resonate beyond advertising and go viral.
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'Opportunities in the sector in the years to come will be on the single stock level as the population dividend comes to an end,' he said. 'I pick companies that have breakthrough products, new business models and innovative sales channels – products that are both visually appealing and fun.'
His top pick, Pop Mart, accounted for 10.5 per cent of the fund's total assets as at March, the top end of its maximum ownership in a single stock allowed, filings show. Other big bets include Mao Geping Cosmetics, up 83 per cent this year, as well as Chongqing Baiya Sanitary Products, and Yantai China Pet Foods.
Xie's strategy lies firmly in targeting the Gen Z consumption trend, where purchase decisions are driven by emotional triggers and hobby interest. Despite looming threats from US President Donald Trump's proposed tariff hikes, this behavioural change fuelled rallies in pockets of China's stock market, especially after the momentum from artificial intelligence began to fade.
Shares of the companies at the heart of this trend – including Pop Mart and Laopu Gold, known for distinctive gold pendants – have staged wild gains this year. Laopu is up more than 2,000 per cent since its initial public offering (IPO) in Hong Kong a year ago.
The rally has expanded to include sectors such as medical aesthetics, pet foods and even vape products. Another potential area for Xie: tapping into the rising popularity of sparkling yellow wine.
'The line between what is considered 'old' and 'new' consumption is blurring and more companies will join the new consumption pool once they realise that there's no future for them eking out a survival in their comfort zones,' Xie said. 'Even old trees can sprout new shoots.'
Still, the consumption-driven rally is showing cracks. Pop Mart tumbled after a People's Daily commentary on Jun 20 that called for stricter regulation of 'blind-box' toys – products in sealed packaging designed to conceal content and induce surprise and greater desire to collect them. Laopu faces greater selling pressure after the lock-up period from its IPO expired on Friday (Jun 27).
Meanwhile, many Gen Z stocks are near or above their average price targets, and in turn, driving analysts to constantly find reasons to bump up their outlook.
Xie acknowledged that valuations in the sector may be getting ahead of fundamentals, with some stocks already pricing in earnings three to five years ahead.
Still, he remains overall bullish, particularly on the stocks he's heavily invested in.
'The gains may look incomprehensible to some people, but it's actually all rooted in earnings,' he said. 'Growth for some is underestimated, while others are just in the early stages of their life cycle.' BLOOMBERG