China stocks-focused hedge funds have taken a 21% hit so far this year, according to data collected by HSBC.
Hedge funds buying and selling Chinese equities tracked by the bank have slumped, just as some of the world’s biggest investors are increasing their exposure to China on reopening hopes.
These same funds averaged a 0.58% decline in 2021, according to the HSBC data seen by Reuters.
HSBC follows eight funds which take long and short positions in Chinese equities. Of these, all have negative performances for 2022, so far.
This year, three were in HSBC’s global list of the bottom 20 hedge fund performances for the week ending November 4.
The $1.9 billion Golden China fund from Greenwoods Asset Management was down 45% for the year to October 31; the $152 million Zeal China Fund from Zeal Asset Management, was down 38% for the same period; and the $156 million Telligent Greater China fund from Telligent Capital down almost 40%.
This has been an extremely tough year for offshore China equity funds, as they face both domestic ‘zero-Covid’ policy uncertainties and external rate hike cycle challenges.
“2022 has been a perfect storm for Chinese equities due to challenges such as Covid, geopolitics and global monetary tightening,” a spokesperson for Greenwoods Asset Management said.
“These headwinds should ease next year and recently we have seen some green shoots. Despite the volatility, we believe the companies we hold are fundamentally sound and will emerge stronger.”
Zeal Asset Management and Telligent Capital did not respond for requests for comment.
China’s bluechip CSI300 index and the Shanghai Composite Index are down 24% and 15% respectively so far this year and compares with a 23% drop in MSCI’s World Stock Index.
Net selling of Chinese equities by international active funds totalled around $30 billion over the past year and global hedge fund allocations in Chinese equities have declined from 15% at the 2020 peak to 8% now, Goldman Sachs estimates.
Man Group Committed to China
Still, some big investors are increasing their exposure to China on hopes that strict Covid rules will be eased.
UK hedge fund manager Man Group, overseeing some $138.4 billion, and the $133.4 billion asset manager PineBridge Investments intend on trading more stocks in China.
China’s economy rebounded faster than anticipated in the third quarter although the outlook is clouded by stringent Covid-19 curbs, a flagging property market and uncertainty over how the country will fare in a global recession.
Other funds are less optimistic. Tiger Global Management has paused investing in Chinese equities, on fears that President Xi Jinping’s precedent-breaking third leadership term will mean a continuation of the communist party’s zero-Covid policy and will stoke geopolitical tensions, the Wall Street Journal reported on Thursday, citing people familiar with the matter.
HFR, another company which tracks hedge fund performance but does not disclose the constituents of its indices, said its index of Chinese hedge funds was down 27% so far this year.
- Reuters with additional editing by Sean O’Meara