Will the hedge fund crowd abandon China?


China is a multibillion-dollar part of most hedge funds’ portfolios. In fact, Hong Kong billionaire Li Ka-shing went so far as to call China a “carrot” for his portfolio.

But now, with China’s economy stalling, with economic indicators below the lows seen last year, and Chinese markets struggling to hold onto their gains, the Asian giant has become a secondary drag on hedge funds’ portfolios as they contend with pressure from a raft of troubles in Europe and the United States.

David Einhorn, founder of Greenlight Capital, has cut his positions in shares of Sun Life Financial, the Swiss bank UBS, Deutsche Bank and Credit Suisse, according to regulatory filings released on Wednesday. That adds to concerns for investors in hedge funds generally, who have posted losses this year.

Peter Oppenheimer, chief executive of Tiger Global Management, has also shifted gears, selling his substantial stake in CNOOC, China’s offshore oil company, in recent months.

Not every hedge fund has pared its holdings in China. Tiger Global Management, for instance, raised its share holdings in Sichuan Leshi Telecom in June by 21 percent. And on Wednesday, Hong Kong-based hedge fund Sky Asset Management’s Hong Kong-based founder, Manu Wannanamuthu, said he was sticking with his massive stake in China’s Tsinghua Unigroup, an investment fund run by the Chinese school Beijing University of Finance and Economics.

In a speech delivered on Wednesday at the Hong Kong University of Science and Technology, Mr. Wannanamuthu said his fund was at a crucial juncture in its history, adding that he had “no plans to reduce or sell positions,” though he did note that he was watching developments.

Mr. Wannanamuthu has been a vocal supporter of Chinese President Xi Jinping, dubbing him a “decisive” leader who was carrying China into the modern age. And he remains bullish on the longer-term outlook for China.

The big question now is whether the hedge fund crowd is losing patience with the investment roller-coaster that has sent mainland shares plunging more than 30 percent this year.

Mr. Wannanamuthu’s bullish view on the Chinese technology stock rally may come as a disappointment to some investors, and underscore how China’s new economic model is operating at a delicate juncture. To jump start growth, Beijing has lifted regulations and purchased huge amounts of stocks.

But as those advances become increasingly apparent, the rally has given way to the kind of volatility that is seen when a country’s central bank adjusts interest rates or an economy dodges a bad debt crisis.

“It’s like daylight in winter,” said Praveen Pandey, chief executive of Menatial Capital, a Hong Kong-based hedge fund. “Last year we could drink spring water. Now, we don’t know whether it’s winter.”

Read the full story on Bloomberg.


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