The Allocator - Apr 5 - Pictet Mandarin | With Intelligence

Chinese equity HF losses follow dismal 2021

Pictet’s Mandarin loses 4.7% in March, Golden China fund down 12%

Manas Pratap Singh
30 MAR 2022

China-focused long/short equity hedge funds have suffered heavy losses in the first quarter, following losses last year by many funds in the region.

March saw the third straight month of Chinese equity-focused losses. Greenwoods, which runs $2.7bn in its Golden China Fund, was down 11.8% for the month by March 18, bringing the fund’s Q1 losses to 23.6%. It lost 7.4% in 2021.

Pictet Asset Management‘s directional long/short Mandarin Fund followed a similar pattern. The $1bn fund run by regional specialist Lan Wang Simond was down 4.7% for the month to 28 March and is now down 8.7% for the year. It lost 4.6% in 2021.

$1.3bn Pinpoint China Fund, one of the few long/short equity hedge funds that managed to churn out positive results in February, was down 10.9% in the first half of March, putting it down 5.8% for the year.

In 2022, China-focused hedge funds have faced a decline due to major regulatory worries within the tech sphere, the restructuring of the real estate company Evergrande and the broader sell-off in global equities. All of this made it more volatile due to China’s ‘zero Covid’ policy which has caused multiple lockdowns in the past months.

So far this year, the Shanghai Composite Index has lost 10.5%, with stocks of some of China’s major tech companies like Tencent and Xioami losing 13.7% and 23.9% so far this year.

More recently, in March, the negative investor sentiment in the Chinese market came from the unclear position of the country’s leadership on the Russian invasion of Ukraine, a portfolio manager with exposure to Chinese equities told With Intelligence. This sent some of the shockwaves of the sell-off in Russian markets into Chinese markets.

March saw foreign investors offloading $9.5 billion worth of mainland Chinese stocks, with the outflow as of March 24 the biggest since March 2020 at the peak Covid-19 panic sell-off.

But while China’s ties to Russia have created a new geopolitical concern that pressures investors to avoid Chinese assets, not all are spooked. According to BlackRock’s outlook for Q2 2022, the investment manager remains “moderately overweight” in Chinese stocks as it sees a shift to easier policies across the board.

While last year and the year so far have been challenging for Chinese equity hedge funds, the same managers, on average, returned 28.2% in 2020, according to EurekaHedge data.

UBS Asset Management also views Chinese capital markets as providing opportunities as we advance. This includes the long-term trends that make China attractive, like its transition to a domestic, service-oriented economy, rise in healthcare, automation and digitization spending, and the move towards green energy and a cleaner environment.