China Hedge Funds Claw Back From Losses as Market Swings Subside

  • Greenwoods, Pinpoint China hedge funds reversed earlier losses
  • Asia hedge funds still on track on trailing global peers

China Hedge Funds Claw Back Losses

Some of the largest China-focused hedge funds are reversing losses they posted early this year as the stock market recovers, although a comeback remains elusive for the industry as a whole.

The $1.5 billion Greenwoods Golden China Fund and the $728 million Pinpoint China Fund rose in September, extending a rebound that started in mid-2016 after losses earlier in the year, according to updates to investors. Greater China-focused hedge funds are having their worst year since 2011 with almost two-thirds showing losses through September, data from Eurekahedge show.

Like peers around the world, hedge funds investing in China are struggling to regain their footing in a year that’s been marked by market shocks and volatility. Performance at global hedge funds such as Ken Griffin’s Citadel and Izzy Englander’s Millennium Management are on the upswing after recent gains helped offset earlier losses.

Declines have been deeper at China hedge funds, which are trailing global counterparts for the first time in five years, after they hemorrhaged an average 8.8 percent in January amid a stock rout triggered by worries about China’s economic slowdown. Concerns have eased in recent months as economic data and corporate earnings beat estimates, helping China stocks climb since this year’s low in January. A gauge of China’s stock market volatility last month fell to the lowest in two years amid policymakers’ resolve to shore up the equity market.

“We have seen signs of stabilization with both China’s macro economy and equities market,” said Joseph Zeng, the partner in charge of the Hong Kong office at Shanghai-based Greenwoods Asset Management. “The forthcoming Shenzhen-Hong Kong Connect is expected to be a catalyst for Hong Kong-listed equities,” referring to a link between the markets scheduled to start in November that will help cross-border investments.

The Golden China Fund returned 3.3 percent in September, the fourth straight month of gains, bringing this year’s advance to 1.2 percent. Profit drivers in the month included bullish bets on U.S.- and Hong Kong-listed Internet and technology companies, energy and consumer stocks, Zeng said. The fund also made money from bearish wagers on some Hong Kong-listed companies, he added, without identifying them.

Pinpoint China Fund added an estimated 1.1 percent in September, taking this year’s return to 3.3 percent, according to an investor update. The fund has generated positive monthly returns since July.

Narrowing Losses

Other China funds narrowed losses in September. APS Asset Management, the Singapore-based investment firm, booked a 0.2 percent September gain for its APS China A-Share Fund, which has $2.3 billion of assets including related strategies. The fund has lost 4.9 percent since the beginning of the year, compared with a 13 percent loss in the CSI 300 Index, according to the firm. Class-A shares are yuan-denominated and trade on the Shanghai and Shenzhen stock exchanges.

Hedge funds investing in China as a group are down about 1 percent this year. After three straight months of gains, though, the number of funds with positive returns for 2016 has more than tripled to 34 percent since June, according to Eurekahedge data.

Some China funds extended gains in September. The $240 million Zeal China Fund has risen nearly 13 percent this year, after a 1.2 percent return in September. It profited from bullish bets on Hong Kong and China-listed stocks. Materials companies, including involved in chemicals, metals and mining, paper, drove most of the performance, William Shek, Hong Kong-based head of marketing and investor relations at Zeal Asset Management, said in an e-mail.

‘Southbound Money’

The $85 million long-short GH China Century Fund, managed by Singapore-based Lygh Capital, returned 0.7 percent in September. The $85 million fund has beat markets this year with its 13.4 percent gain.

“The so-called ‘southbound’ money - shorthand for mainland Chinese buyers buying via the Shanghai-Hong Kong Stock Connect - keep buying high-yielding Chinese financial names, driving the benchmark Hang Seng Index to its 12-month high,” Lygh said in its September newsletter. “Meanwhile, the domestic equity market has been trading in a doldrums as domestic investors flock to buy properties and shun stocks after being burned by the stock market last year.”

China-focused funds were not the only ones making money in September.

  • The $1.9 billion Segantii Asia-Pacific Equity Multi-Strategy fund booked a 2 percent return for September and 5.4 percent for this year, according to an estimate from the firm. The fund led by Simon Sadler, a former trader at Dresdner Kleinwort Benson and Deutsche Bank AG, trades Asian equities and equity-linked securities with a focus on North Asia.
  • The $81 million PruLev Global Macro Fund, managed by Norman Tang and August Li and investing mainly in global liquid developed markets, returned 0.9 percent in September, according to a newsletter, bringing the fund’s year-to-date gain to 58 percent and making it the best performer among peers over a three-year period, according to data compiled by Bloomberg. A rally in developed-market bonds contributed to September returns, according to a newsletter obtained by Bloomberg News. 
  • Astral Value Fund, a long-biased stock fund run by Singapore-based Astral Asset Management, returned 3.1 percent in September, bringing its 2016 performance to 9.5 percent, according to its newsletter. Investors interest will gradually return to Asian markets as U.S. stock valuations start looking stretched and concerns about slowing economies in the Eurozone mount, it said. 
  • The $21 million Accudo Asian Value Arbitrage Fund returned 4.7 percent in September for 26 percent gain this year, according to an estimate sent to investors. A bearish bet on convenience store operator FamilyMart UNY Holdings Co. share price paired with a bullish wager on peer Lawson Inc. contributed nearly two percentage points of the return as a result of index rebalancing, Manuel Schlabbers, its manager, wrote.
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