Baillie Gifford’s big bets on China have come back to bite the Edinburgh manager as the government’s latest crackdown on the education sector has prompted investors to flee.
Over the weekend Beijing introduced sweeping rule changes to China’s $100bn private tutoring industry, barring businesses from turning a profit, listing on stock exchanges worldwide and accepting foreign investment.
The announcement wiped billions off the market value of New York-listed Chinese education companies New Oriental Education and TAL Education and stoked fears of further regulatory intervention.
China’s tech giants, which have already been at the centre of a government clampdown, have been badly hit by the sell-off.
Shares in Tencent plunged 9% on Tuesday, its worst single day of trading in over a decade, taking its total losses from Friday to 16%. E-commerce giants Alibaba and JD.com have seen shares plunge by a similar amount, losing 11% and 16% over the two-day trading period respectively.
Chinese food delivery firm Meituan has seen nearly 30% of its value wiped in the past two days, as regulators issued new guidelines on Monday calling for improved standards for food delivery workers.
Scottish Mortgage loading up on Chinese disruptors
The sharp sell-off has weighed on Edinburgh fund house Baillie Gifford, which has made big bets on fast-growing companies in the region.
Its Scottish Mortgage trust saw shares slump 4% on Tuesday. Managers James Anderson (pictured) and Tom Slater have been vocal about finding more opportunities in China than Silicon Valley.
Currently around one fifth of the £19.7bn trust is held in Chinese stocks, according to Trustnet, with Tencent (5.1%), Alibaba (3.8%) and Meituan (3.7%) all featuring in its top 10 holdings. Anderson and Slater also hold agriculture-focused online platform Pinduoduo, as well as smaller unlisted holdings like Ant Group, which saw its $37bn IPO halted by authorities last year.
Monks Investment Trust and Edinburgh Worldwide Investment Trust, which have also been upping their exposure to the region recently, each fell around 2% on Tuesday.
Monks loaded up on Chinese disruptors last year, purchasing Li Auto which it hopes “could turn out to be China’s Tesla,” Tik Tok owner Bytedance and Tencent Music Entertainment, or “China’s Spotify”. It also has positions in telemedicine firm Ping An Health and Technology, Brilliance Automotive, which is the manufacturer and distributor of BMW cars in China, and Meituan.
Baillie Gifford China Growth sees shares slide 18% in a month
Funds with a more explicit China focus, including the Baillie Gifford China Growth trust and Pacific Horizon Growth trust, have suffered even steeper falls. Both trusts lost around 6% on Tuesday.
Shares in Baillie Gifford China Growth are some 18% lower now than they were a month ago, but the trust still trades at a 2.9% premium to net asset value, according to data from the Association of Investment Companies.
Managers Sophie Earnshaw and Roderick Snell’s biggest holdings are Tencent (8.6%), Alibaba (8.2%), Meituan (3.9%) and Bytedance (3.8%).
See also: Baillie Gifford China Growth eyeing ‘exciting’ pipeline of private companies
The recent sell-off has also been brutal for Baillie Gifford China, the open-ended fund run by Earnshaw and Snell that is similar to the trust. On a one-month view the £742m fund is down 12%, worse than the IA Greater China sector’s losses of 7.6%.
The £1.5bn Baillie Gifford Emerging Markets Growth fund, which has around 36% in Chinese equities, has also stumbled, losing 6.8% versus the IA Global Emerging Market’s -3.8% average.
Baillie Gifford declined to comment.
