Hedge funds overseen by firms including Aspex Management and CloudAlpha Capital Management scored double-digit gains in January, as China’s exit from pandemic restrictions handed Asia stock pickers their second-best month in more than two years.
(Bloomberg) — Hedge funds overseen by firms including Aspex Management and CloudAlpha Capital Management scored double-digit gains in January, as China’s exit from pandemic restrictions handed Asia stock pickers their second-best month in more than two years.
Funds benefited after China abruptly dropped the Covid Zero policies in December and shifted to jolting its economy from the slowest growth in decades. Investor sentiment was also lifted by an easing of regulatory pressure on battered industries such as technology, boosting returns for holders of US-listed Chinese shares.
Still, if the most commonly held American depositary receipts of January’s top gainers are anything to go by, managers may have been on the back foot again in February as the exuberance wore off.
Hermes Li led his $7.2 billion Aspex hedge fund to a nearly 12% January surge, CloudAlpha Tech Fund soared 18%, and LyGH Capital’s GH China Century Master Fund jumped about 15%, said people with knowledge of their results, asking not to be identified discussing private information.
A Eurekahedge index tracking the performance of Asia stock-picking hedge funds climbed 5.1% in January, the most since November and the second-best month after June 2020.
Other top performers in January included Ariose Capital Management, whose hedge fund surged nearly 12%, a newsletter showed. Brilliance China Core Long Short Fund was up by a similar amount, according to data compiled by Bloomberg. Chris Wang’s Yunqi Path Capital Master Fund rebounded 14%, said two people with knowledge of the matter.
Representatives of Aspex, CloudAlpha, Yunqi and Kaizen Capital Partners declined to comment. LyGH, Pinpoint Asset Management, IvyRock Asset Management (HK) Ltd., Triata Capital and Tribeca Investment Partners confirmed the January numbers without giving further details. Ariose, Brilliance Asset Management, FengHe and Franchise Capital Management executives didn’t reply to emails seeking comment.
The Nasdaq Golden Dragon China Index jumped 18% in January, outperforming an index tracking Hong Kong-traded Chinese stocks and China’s domestic stock benchmarks. The gauge lost about three-quarters of its value in the 20 months to October 2022, as US-listed Chinese stocks were harder hit by investor concerns about a more hostile regulatory, geopolitical and interest-rate environment.
Bloomberg News analyzed US regulatory filings of year-end holdings by eight of the managers: Ariose, Aspex, Brilliance, CloudAlpha, IvyRock, FengHe, Franchise and Pinpoint.
Coming into 2023, their most commonly held ADRs included those of a pair of Beijing-based education companies — New Oriental Education & Technology Group Inc. and TAL Education Group. The duo lost most of their market value earlier, after Beijing in 2021 rendered the once lucrative after-school compulsory education curriculum tutoring business unprofitable. The stocks have more than quadrupled off the trough in March 2022.
Other popular holdings included e-commerce companies Alibaba Group Holding Ltd. and PDD Holdings Inc., online recruitment firm Kanzhun Ltd., and housing platform KE Holdings Inc. In January, Goldman Sachs Group Inc. analysts flagged the first three as key beneficiaries from China’s reopening, economic revival and easing regulations.
But conviction in the recovery has waned. All but seven members of the Golden Dragon China Index dropped last month as of Feb. 27. Alibaba and TAL Education gave back most of the January gains, and Kanzhun is now down this year.
Investors including Andrew Swan, Asia ex-Japan equities head of Man GLG, have expressed concern about the lack of drivers to sustain economic and earnings growth momentum in China after the initial reopening rebound. Mounting geopolitical tensions are adding to the risk-off sentiment, and investors are also retreating from emerging markets amid expectations of higher interest rates.
US-based long-only and hedge fund managers were net sellers of Chinese ADRs in February, according to Morgan Stanley. “Profit-taking from Chinese ADRs has been ongoing among hedge funds since mid-January,” analysts including Gilbert Wong wrote in a Feb. 27 note.
One US-listed stock that’s still performing for the Asian funds is Tesla Inc. The electric vehicle maker surged 20% in February as of Monday, extending this year’s gain to nearly 70%. Aspex, CloudAlpha and Franchise were among funds rewarded for holding on to the stock despite negative news headlines around its founder Elon Musk, Covid disruptions at its Shanghai factory and logistical troubles.
The market pullback isn’t limited to US-listed equities. Only a handful of the 50 constituents of the Hang Seng China Enterprises Index, tracking Hong Kong-listed Chinese stocks, gained in February.
Historically, Asia and China-focused hedge funds direct a large portion of their investments to securities listed in this region. Public information on such investments is scant. The analysis of US regulatory filings doesn’t take into account trading after the quarter-end. It’s also not clear what bearish trades funds may have put on.
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