Asia Hedge Fund Started by Ex-Alibaba's Wu Is Bearish on China

  • FengHe fund aims to more than triple assets to $300 million
  • Firm becoming ``more bearish'' on tech, auto, retail stocks

F&H Fund Management, the asset manager co-founded by the former chief technology officer of Alibaba Group Holding Ltd., is so bearish on stocks in China that it is opening its hedge fund to outside investors.

The FengHe Asia Fund is seeking to more than triple assets to $300 million by the end of next year from $80 million currently, said Matt Hu, a former portfolio manager at China Securities Ltd. who started Singapore-based F&H in 2010 with John Wu, the 19th person hired by Jack Ma’s e-commerce company Alibaba.

FengHe, which means "risk and return" in Mandarin, has returned 20 percent on an annualized basis, including 24 percent this year, according to Chief Operating Officer Rebecca Walters. The firm is bearish on China as the economy is slowing from a multi-decade bull run. It is wagering against companies that depend on growth in the smartphone market in China, such as MediaTek Inc., traditional automotive manufacturers such as Great Wall Motor Co. and Hong Kong retailers including Luk Fook Holdings (International) Ltd.

"Now is a perfect time for us to open because of our short expertise," Hu, who has been trading the fund with internal capital since December 2012, said in a telephone interview from Singapore. "We’re becoming more and more bearish on China and Asia, and feel that we can generate returns on our short positions."

Disappointing Results

While China’s benchmark Shanghai Composite Index has surged 24 percent from an Aug. 26 low, third-quarter profits trailed analyst estimates at 68 percent of companies in the index, the eighth straight quarter of disappointing results. President Xi Jinping said Nov. 3 that average annual growth should be no less than 6.5 percent in the next five years, the weakest period of expansion since the economy was opened up more than three decades ago.

F&H also has a $300 million venture capital business managed by Wu. On the hedge fund side, the FengHe fund is bearish on an oversupply of mobile phones in China, where ninety-two people out of every 100 have a cell phone on the mainland, leaving almost no room for growth for the producers, according to Hu.

The firm gained exposure to China’s mobile market by shorting MediaTek and Taiwan Semiconductor Manufacturing Co., two Taiwan-listed semiconductor makers, Hu said. MediaTek fell more than 40 percent this year and Taiwan Semiconductor is down about 2.5 percent.

FengHe is also short Great Wall Motor, a Hong Kong-listed pick-up truck and sport-utility vehicle manufacturer whose shares are down 33 percent this year. Demand is slowing and there is an oversupply, while profit margins are coming down because car dealerships are slashing prices, Hu said.

In Hong Kong, it recently wagered against jewelry retailer Luk Fook Holdings (International), which reported a decline in same-store sales in the third quarter as Chinese shoppers diminished. The shares are down 32 percent in 2015.

The hedge fund is bullish on the renewable energy automobile sector and invested in Zhengzhou Yutong Bus Co., a manufacturer of medium- and large-size buses that run on lithium batteries. Hu said the company stands to benefit from Beijing’s green initiatives, which include eliminating heavy-polluting vehicles. The shares are up almost 50 percent this year.

Before it's here, it's on the Bloomberg Terminal.