Macro bets help hedge funds ride tough Chinese markets

HONG KONG (Reuters) – The hedge funds that have outperformed rugged Chinese stock markets so far this year say betting on big-picture macroeconomic changes has helped them.

One such fund is Stanley Tao’s Golden Nest Greater China Fund, worth $230 million. The hedge fund had a net return of about 2.4% for the month of September, according to internal estimates, and it was down 1.2% in the first nine months.

This is compared to MSCI China (.dMICN00000PUS) It fell nearly 30% in the nine months to September, marking the worst initial nine months since 2008. Shanghai Composite Index (.SSEC) It fell 16% over the same period and fell 5.5% in September alone.

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High risk aversion and negative bets on the Internet, real estate and healthcare have helped the fund weather strong headwinds, said Tao, founder and chief information officer at Golden Nest Capital Management.

Tao said his fund has begun cutting exposure to tech stocks and turning bearish since late 2020 after monitoring regulatory developments, external risks from an audit dispute with US regulators, and acknowledgment that the Chinese government is determined to fix the “uncontrolled expansion of capital” in technology. companies.

Long-term China-focused equity funds fell 13.5% by the end of August, in sharp contrast to the 1.1% gain for China’s macro managers, according to Eurekahedge data from With Intelligence.

Macro strategies are the biggest gainers this year, as hedge funds take advantage of volatility from the different pace of global price hikes and regulatory changes — seizing opportunities that have not existed during a decade of easy monetary policy uniformly everywhere. For a stock picker, top-down search is also a major factor in winning or not.

“Ignoring the importance of macro research could be a big mistake for some fundamental investors,” Tao said, adding that such macro research prevents money from rushing into markets at the end of a bull run, or hunting the bottom when a bear market starts.

Another $1.8 billion Shanghai Chongyang Investment Management, another hedge fund, cut exposure to stocks twice in the first quarter to about 60% of assets, thus partially avoiding the panic selling that followed the strict COVID-19 lockdowns in China.

Partial or complete closures were imposed in major centers across the country from March to May, including the most populous city in Shanghai, and sudden closures continue to be implemented in some areas to stem the outbreak.

“We exercised caution in February and took advantage of a sharp market recovery window at the end of March to trim our positions further,” said Wang Qing, chairman of Shanghai Zhong Yang.

Wang said the market had not fully identified the downside risks to economic growth and corporate profits at that time.

China’s economy came under severe pressure in the second quarter as lockdowns affected consumption and factory production, but there is growing optimism that epidemic restrictions will ease.

Chongyang decided the fourth quarter was a good time to turn positive and began adding some technology and consumer stocks to its portfolio in the past few months.

The yuan-denominated Chongyang I fund fell 1.4%, while the offshore Chongyang Dynamic Value Fund fell 8.6% by the end of August.

Wang believes market sentiment will improve within three months, expects China to loosen COVID-19 restrictions after the Communist Party congress in October, and US inflation should have fallen for 4 to 5 months by then.

However, Golden Nest’s Tao will remain cautious until next March when China sets the direction of its economic policy during the ‘two sessions’ – meetings of top decision-making bodies, the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference. (CPPCC).

(This story has been paraphrased to fix the word in the first paragraph to has, not yours)

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Editing by Vidya Ranganathan and Jacqueline Wong

Our criteria: Thomson Reuters Trust Principles.

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