- Balyasny unit, Graticule among Asia funds that saw picks fall
- Indus Capital, Ichigo among funds whose calls gained in value
What a difference a year makes.
When some of the biggest hedge funds that trade in Asia gathered on June 3, 2015, at the Sohn Conference Hong Kong, there was widespread euphoria about measures by Prime Minister Shinzo Abe and the Bank of Japan to end the nation’s deflation and China’s stock market was trading near a record high.
Since then, slowing global growth, concerns about the trajectory of Federal Reserve actions and a commodity slump have roiled markets worldwide. Global investors such as BlackRock Inc. have ended bullish calls on Japan as Abe’s growth measures faltered. In China, a rout that began soon after last year’s conference has wiped out as much as $5 trillion off the nation’s stock market value as growth slowed and retail investors unwound excessive borrowings.
The hedge fund industry has had its worst start to a year, as measured by performance and capital outflows, since 2009, when the world was reeling from the global financial crisis. Asia-focused hedge funds have lost 2.4 percent this year, according to Singapore-based Eurekahedge Pte. Hedge funds’ woes highlight the difficulty of picking investments based on fundamentals in a world kept on its toes by central bank and government intervention.
Here are some investment picks from last year’s conference in Hong Kong and how they’ve fared in the past 12 months.
Alp Ercil, founder of Asia Research & Capital Management
Investment thesis: Ercil, whose firm manages more than $2 billion and invests in distressed assets, said in 2015 that Hokkaido Electric Power Co., Kansai Electric Power Co., and Kyushu Electric Power Co. are among Japanese power producers that could advance more than 60 percent, with tariff increases and the restart of nuclear reactors shut after the 2011 earthquake helping them return to profitability.
One year on: The three companies’ shares lost more than 20 percent of their value in the past year, as the former monopolies face declining sales, more competition from renewable energy and an influx of new retailers. ARCM sold the stocks at a profit soon after Kyushu Electric in August became the only Japanese utility with a nuclear power plant currently operating, said a person with knowledge of the matter. Kyushu Electric returned to profit in the last fiscal year and its stock touched a five-year high in August before falling.
Avinash Abraham, former Asia head, Balyasny Asset Management
Investment thesis: Abraham, who left Balyasny this year, said in 2015 that Suzuki Motor Corp. may rally 50 percent. The stock had been suppressed by provisions before a planned buyback of 20 percent of shares from Volkswagen AG to undo their cross-stakeholdings. Analysts and investors also under-estimated earnings contributions from its fast-growing Indian and dealership businesses.
One year on: The stock tumbled nearly 34 percent in the one year ended May 31, as a stronger yen hurt exports and the company disclosed it used an improper method to test the fuel efficiency of its vehicles. That overshadowed the effect of the fastest passenger vehicle sales in India in five years.
Adam Levinson, founder of Graticule Asset Management Asia
Investment thesis: Levinson, who leads the Singapore-based hedge fund that manages about $4.5 billion, liked a basket of Chinese securities brokers because they were the "focus of unique and incredibly powerful change in market structure." Massive increases in trading activity and volume would benefit them, he said last year.
One year on: Hong Kong shares of Citic Securities Co. and China Galaxy Securities Co., two of the nation’s largest brokers, have lost almost half their value as China’s domestic equity market rout last year hurt trading volumes, while a basket of Chinese brokers traded in Hong Kong have declined 28 percent. Brokers were asked by the Chinese securities regulator to contribute 100 billion yuan ($15.2 billion) to the nation’s market rescue fund.
Aaron Nieman, head of pan-Asian equity at Hutchin Hill Capital
Investment thesis: Neiman said last year that share swaps to unwind cross-shareholdings could boost the stock prices of Japanese broadcasters such as Nippon Television Holdings Inc., Fuji Media Holdings Inc., TV Asahi Holdings Corp. and Tokyo Broadcasting System Holdings Inc. by as much as 50 percent over 18 months. Separately, shares of MMG Ltd., the overseas unit of China’s biggest state-owned metals trader, could more than triple in the following year or two, as a copper project in Peru it bought from Glencore Plc became operational, he said.
One year on: The broadcasters’ shares all fell, with declines ranging from 4 percent to 20 percent. MMG’s Hong Kong-traded shares plunged 45 percent in the past year as industrial metals prices touched a six-year low in January. The company booked a $784 million writedown in March and swung to a full-year loss amid the collapse in metal prices. Prices of MMG’s three key products, copper, zinc and lead, have been rebounding.
Ichigo Asset Management’s Founding Partner Rob Crawford
Investment thesis: Crawford said he liked IT Holdings Corp., a Japanese provider of network solutions and systems integration, and Japan’s largest men’s suit retailer Aoyama Trading Co. Both management teams announced medium-term targets for return-on-equity improvements, in line with government-endorsed corporate reform initiatives.
A year on: Aoyama’s share price slid 17 percent in the past year. IT Holdings gained nearly 10 percent. Ichigo’s Crawford, in an e-mail, said the fund’s total return on Aoyama is 56.4 percent since it first invested in the shares in December 2013, and the gain on IT Holdings is 48.5 percent since the investment was started in April 2014.
Indus Capital Partners’s Partner Ethan Devine
Investment thesis: Devine said Coca-Cola West Co., a Japanese maker and seller of beverages and foods, had room to increase its per-share dividend to bring it in line with the local industry payout average of 60 yen, 46 percent more than its actual 2014 payout. Together with a potential merger with peer Coca-Cola East Japan Co., that would help double its stock price.
A year on: Shares of the company, which in February pledged to raise its annual dividend to 44 yen this year, have surged 38 percent in the past year. Coca-Cola West’s share price rose more than 10 percent the day after a planned merger with Coca-Cola East was announced in April.
“Coca-Cola West shares have performed well since our Sohn presentation, but more important are the fundamental developments,” Devine said in an e-mail. “The vision for the Japanese Coke bottling system that we laid out at Sohn last year has come one step closer with merger discussions between Coke East and West.”
Oasis Management’s Founder Seth Fischer
Investment thesis: Fischer said shares of Kyocera Corp., a Japanese electronics and solar-panel maker, could gain 90 percent, helped by moves to unwind cross-shareholdings with mobile-services provider KDDI Corp. and improved information disclosure.
One year on: Kyocera’s stock has slid 18 percent in the past year even after it announced a plan in February to sell part of its KDDI stake back to the company. Kyocera’s annual profit declined 5.9 percent last year amid slower economic growth in Japan, China and its European markets.
Spokesmen for ARCM, Graticule and Oasis declined to comment. Nieman didn’t reply to e-mail messages sent on a U.S. holiday.