Hedge fund stars are paying the price for China’s bad decision. india business news
for experienced hedge fund For investor Chua Soon Hock, 2024 was to herald a multi-year rise in Chinese stocks and the opportunity of a lifetime. Instead, the sudden demise of their funds serves as a warning to fellow China bulls: Stick to your guns at your own risk.
Chua’s Asia Genesis Asset Management Pte. said investors The $330 million fund will close this week after it was badly hit by ill-advised bets on Japan and a collapse in Chinese markets that it blamed largely on inaction by policymakers, including President Xi Jinping. Was held responsible.
“I am writing to you with a heavy heart and extreme regret,” Chua said in a letter to customers. Their cash will be returned this month after a decline of about 19%. “I have lost confidence as a businessman.”
Chua’s plight shows how even the most experienced fund managers have fallen into China’s trap market recession Made worse by limited policy support from Beijing. Longtime China hedge fund bull Li Bei admitted mistakes after suffering the worst loss of his career, while global investment firm T. Rowe Price Group Inc. has lost 80% of the value of its China holdings over the past few years. Have seen a decline. At its peak.
“All the evidence I’m seeing is that the economic data is much weaker than I thought,” said Justin Thomson, head of international equities at Baltimore-based T. Rowe Price. “Your confidence has been tested harder and longer than ever before.”
China’s benchmark CSI 300 index hit a five-year low on Monday and the prolonged recession has sent mutual funds closing at five-year highs, another sign of waning investor confidence. Although the latest $278 billion rescue package sent stocks briefly higher on Tuesday, many remain skeptical that it is enough to end the crisis.
China’s market is facing a “severe lack of confidence,” with some investors worried about the possibility of a recession, according to Zhang Wenchao, chairman of Shanghai Yunhan Asset Management Co., whose fund manages about 700 million yuan ($98 million). Does. When Zhang tried to buy the dip last week, he was forced to immediately sell to cut his losses. Since then he has given up everything store Holding.
“It was very scary – don’t be discouraged,” Zhang said, adding that investors’ hopes now rested on policy support rather than fundamentals or sentiment. “The stock’s valuation certainly looks good at current levels, but we may not be at a true bottom yet.”
Even one of China’s best-performing macro hedge funds has struggled. Li of Shanghai Banksia Investment Management Centre, which manages more than 10 billion yuan, predicted a bull market in October 2022, betting on corporate profits and a boom in the property sector.
Their flagship fund declined nearly 15% last year — the first annual loss in at least six years, according to the firm’s December investor letter seen by Bloomberg. The maximum decline, or decline, was 25% from its peak in mid-2023, the worst decline of his career.
“I made the mistake of assuming a quick victory,” Li said in a post on WeChat on Tuesday. He said the intensity of China’s policy response to the faltering economy did not meet his expectations.
Overall, more than $6 trillion has been wiped off the market value of Chinese and Hong Kong stocks since the peak in 2021.
Meanwhile, Comet Capital Partners Pte Chief Executive Officer Kerry Goh, who still considers himself a long-term China bullish, has reduced his China weighting after a sharp market decline last year.
“Last year we were wrong in terms of momentum,” he said, adding that its equity allocation to China has fallen from 30% to 20% in the first quarter of 2023. He noted that long-term funds sold billions of dollars of Chinese stocks last year as the selloff continued.
For investors like Luca Castoldi at Real Intesa Sanpaolo in Singapore, fundamental analysis is becoming less effective with so much pessimism and skepticism about government support. He said investors no longer care about China and those who do not want to invest there have already exited.
“I can’t use the same metrics we used before,” said Castoldi, who is now trading more on technical indicators and recently went from neutral to underweight China stocks. “You never know where the destination is.”
true believer
Some money managers, like Chua, a veteran of Salomon Brothers & Bankers Trust and former investment officer at the Monetary Authority of Singapore, have clearly offered a mea-culpa.
Chua wrote in his letter to investors that recent rough trading has proven that my past experience is no longer valid and, instead, is working against me. “I have lost my knowledge, business and psychological edge.”
It was a notable pivot for Chua, who as recently as last month was praising China’s virtues through his LinkedIn posts while condemning the “fake narratives” of the country’s critics and Western media. By late December, Chua and his team remained true believers, believing that Hong Kong and Chinese stocks were near bottoms while Japanese stocks had peaked.
“Chinese and Hong Kong stocks represent the best risk reward stock investment set-up in my 40-year professional career – I’m super bullish,” he posted. “The Chinese are capable, flexible, great businessmen and executors.”
To support that approach, their Asia Genesis fund increased leverage to add more China stocks while shorting Japanese equities, according to the firm’s letter to investors on Monday. As Japanese assets continued to rise, the company closed out its short calls on January 16 and focused on bets that Hong Kong and China stocks would recover after the People’s Bank of China cut interest rates.
“Regrettably, the PBOC did not cut rates and President Xi’s speech the next day signaled to equity investors that his focus was not on the markets,” Chua said in the letter. By January 18, the fund had lost 6% in a single week. “I still don’t understand the incongruity of China’s policymakers not fighting against deflation,” Chua said.
Meanwhile, Japanese shares continued to fall and hit a 34-year high this month as authorities and the stock exchange urged companies to boost shareholder value and enhance corporate governance.
“The risk-reward principle for both the short-term and the long-term has been turned on its head,” Chua wrote. “We made big mistakes recently with the sharp moves in Nikkei and Hong Kong that went in opposite directions.”
will not give up
Still, some China bulls are not giving up just yet.
Although T. Rowe Price’s China stake has fallen to $15 billion from a peak of $75 billion, Thomson still favors China as an asset class after a three-year long decline. He believes sentiment is so extreme that the market could make a rapid comeback.
“Deep down, I still believe there is a lot of money to be made in China,” he said. “But China’s era of hypergrowth is over. This will be a different China.”
Meanwhile, Banksia’s Li, who has been calling China a “once in 20 years” opportunity, now says it may take a few more months or quarters to materialize.
“I always believe that I will achieve good investment performance in the long term,” she wrote in her note, “and become one of the “best” investors in China.” “I will use the next few decades to prove it.”
Chua’s Asia Genesis Asset Management Pte. said investors The $330 million fund will close this week after it was badly hit by ill-advised bets on Japan and a collapse in Chinese markets that it blamed largely on inaction by policymakers, including President Xi Jinping. Was held responsible.
“I am writing to you with a heavy heart and extreme regret,” Chua said in a letter to customers. Their cash will be returned this month after a decline of about 19%. “I have lost confidence as a businessman.”
Chua’s plight shows how even the most experienced fund managers have fallen into China’s trap market recession Made worse by limited policy support from Beijing. Longtime China hedge fund bull Li Bei admitted mistakes after suffering the worst loss of his career, while global investment firm T. Rowe Price Group Inc. has lost 80% of the value of its China holdings over the past few years. Have seen a decline. At its peak.
“All the evidence I’m seeing is that the economic data is much weaker than I thought,” said Justin Thomson, head of international equities at Baltimore-based T. Rowe Price. “Your confidence has been tested harder and longer than ever before.”
China’s benchmark CSI 300 index hit a five-year low on Monday and the prolonged recession has sent mutual funds closing at five-year highs, another sign of waning investor confidence. Although the latest $278 billion rescue package sent stocks briefly higher on Tuesday, many remain skeptical that it is enough to end the crisis.
China’s market is facing a “severe lack of confidence,” with some investors worried about the possibility of a recession, according to Zhang Wenchao, chairman of Shanghai Yunhan Asset Management Co., whose fund manages about 700 million yuan ($98 million). Does. When Zhang tried to buy the dip last week, he was forced to immediately sell to cut his losses. Since then he has given up everything store Holding.
“It was very scary – don’t be discouraged,” Zhang said, adding that investors’ hopes now rested on policy support rather than fundamentals or sentiment. “The stock’s valuation certainly looks good at current levels, but we may not be at a true bottom yet.”
Even one of China’s best-performing macro hedge funds has struggled. Li of Shanghai Banksia Investment Management Centre, which manages more than 10 billion yuan, predicted a bull market in October 2022, betting on corporate profits and a boom in the property sector.
Their flagship fund declined nearly 15% last year — the first annual loss in at least six years, according to the firm’s December investor letter seen by Bloomberg. The maximum decline, or decline, was 25% from its peak in mid-2023, the worst decline of his career.
“I made the mistake of assuming a quick victory,” Li said in a post on WeChat on Tuesday. He said the intensity of China’s policy response to the faltering economy did not meet his expectations.
Overall, more than $6 trillion has been wiped off the market value of Chinese and Hong Kong stocks since the peak in 2021.
Meanwhile, Comet Capital Partners Pte Chief Executive Officer Kerry Goh, who still considers himself a long-term China bullish, has reduced his China weighting after a sharp market decline last year.
“Last year we were wrong in terms of momentum,” he said, adding that its equity allocation to China has fallen from 30% to 20% in the first quarter of 2023. He noted that long-term funds sold billions of dollars of Chinese stocks last year as the selloff continued.
For investors like Luca Castoldi at Real Intesa Sanpaolo in Singapore, fundamental analysis is becoming less effective with so much pessimism and skepticism about government support. He said investors no longer care about China and those who do not want to invest there have already exited.
“I can’t use the same metrics we used before,” said Castoldi, who is now trading more on technical indicators and recently went from neutral to underweight China stocks. “You never know where the destination is.”
true believer
Some money managers, like Chua, a veteran of Salomon Brothers & Bankers Trust and former investment officer at the Monetary Authority of Singapore, have clearly offered a mea-culpa.
Chua wrote in his letter to investors that recent rough trading has proven that my past experience is no longer valid and, instead, is working against me. “I have lost my knowledge, business and psychological edge.”
It was a notable pivot for Chua, who as recently as last month was praising China’s virtues through his LinkedIn posts while condemning the “fake narratives” of the country’s critics and Western media. By late December, Chua and his team remained true believers, believing that Hong Kong and Chinese stocks were near bottoms while Japanese stocks had peaked.
“Chinese and Hong Kong stocks represent the best risk reward stock investment set-up in my 40-year professional career – I’m super bullish,” he posted. “The Chinese are capable, flexible, great businessmen and executors.”
To support that approach, their Asia Genesis fund increased leverage to add more China stocks while shorting Japanese equities, according to the firm’s letter to investors on Monday. As Japanese assets continued to rise, the company closed out its short calls on January 16 and focused on bets that Hong Kong and China stocks would recover after the People’s Bank of China cut interest rates.
“Regrettably, the PBOC did not cut rates and President Xi’s speech the next day signaled to equity investors that his focus was not on the markets,” Chua said in the letter. By January 18, the fund had lost 6% in a single week. “I still don’t understand the incongruity of China’s policymakers not fighting against deflation,” Chua said.
Meanwhile, Japanese shares continued to fall and hit a 34-year high this month as authorities and the stock exchange urged companies to boost shareholder value and enhance corporate governance.
“The risk-reward principle for both the short-term and the long-term has been turned on its head,” Chua wrote. “We made big mistakes recently with the sharp moves in Nikkei and Hong Kong that went in opposite directions.”
will not give up
Still, some China bulls are not giving up just yet.
Although T. Rowe Price’s China stake has fallen to $15 billion from a peak of $75 billion, Thomson still favors China as an asset class after a three-year long decline. He believes sentiment is so extreme that the market could make a rapid comeback.
“Deep down, I still believe there is a lot of money to be made in China,” he said. “But China’s era of hypergrowth is over. This will be a different China.”
Meanwhile, Banksia’s Li, who has been calling China a “once in 20 years” opportunity, now says it may take a few more months or quarters to materialize.
“I always believe that I will achieve good investment performance in the long term,” she wrote in her note, “and become one of the “best” investors in China.” “I will use the next few decades to prove it.”
