Donald Trump’s threats of a trade war with China are sending jitters through the hedge-fund community.
Pinpoint Asset Management and SPQ Asia Capital have recently cut a measure of risk called net exposure — the difference between bullish and bearish bets — for hedge funds that invest in China. FengHe Asia Fund, which focuses on China, Taiwan and Vietnam, has reduced its allocation to Chinese stocks to the lowest level since 2012.
“The trade spat is the last straw,” said Matt Hu, co-founder of Singapore-based FengHe Fund Management who manages the $240 million FengHe Asia Fund, who started paring Chinese financial and manufacturing stocks last year in favour of Vietnamese companies. China’s equity market has been recovering from its mid-2015 crash, helping power the best performance in eight years in 2017 for hedge funds investing in the region. But the gains are imperiled by Trump’s determination to wring concessions from Beijing. Elevated US-China tensions spiralled into threats of tit-for-tat tariff retaliations this week, which some analysts predict could cut as much as 0.5 percentage points off China’s economic growth. The Shanghai Composite Index fell 4.8 percent this week through Thursday.
Some domestic managers and offshore China hedge funds have reduced their holdings amid growing trade worries, William Ma, chief investment officer of the $23 billion Gopher Asset Management unit of Chinese wealth manager Noah Holdings, said. Average net exposure for Asia long-short hedge funds has dropped to 40 percent, from about 50 percent, over the first four months of this year, said Richard Johnston, Asia head of Albourne Partners.
“Many still don’t think fundamentals have changed, so I didn’t expect to see a large reduction,” said Johnston, whose firm advises clients on more than $450 billion of alternative investments including hedge funds.
A Eurekahedge index tracking Greater China-focussed equity long-short hedge funds gained 4.6 percent in the first five months, far behind the 32 percent surge in 2017 though ahead of the 0.5 return of global peers this year.
The trade dispute compounds worries about interest rate hikes and high market valuations, SPQ’s Dechy said of the firm’s decision to trim risks.