The robust recovery in the Chinese stock market has delivered significant returns for several hedge funds, with some achieving gains exceeding 25% in September. This growth results from a series of stimulus measures by the Chinese government aimed at reviving the economy, such as lowering the reserve requirement ratio for banks and adjusting mortgage interest rates.
These policies, coupled with market optimism, propelled the MSCI China Index up by 23% in September, marking its largest increase since November 2022. Specifically, Triata Capital's China fund soared 44%, Blue Creek's fund surged by an estimated 31%, and Yunqi Capital's fund rose 26%. These impressive performances have erased earlier losses this year and provided much-needed relief for China-focused hedge funds.
Billionaire investor David Tepper (Trades, Portfolio) is acquiring more China-related assets, while hedge funds rush to capitalize on the market's rebound. Goldman Sachs reported a record net purchase of Chinese stocks by its hedge fund clients, the largest weekly buy since 2016. The firm's report also noted that its China-focused fundamental stock-picking hedge fund clients saw an average return of 6% last week, marking the best weekly performance on record.
Nicolas Amstutz, a partner at Lotus Peak Capital, mentioned that the sudden policy shifts have generated excess beta returns for China funds, predicting a favorable environment for alpha-focused strategies in the future. According to sources, Triata Capital, which manages around $770 million in assets, is currently focusing on stocks with strong fundamentals, high growth potential, substantial cash balances, and low valuations. In September, the fund saw robust gains from AI software and data center-related stocks.
Another source indicated that Yunqi Capital's founder, Chris Wang, made substantial purchases of heavily sold U.S.-listed Chinese companies like Lufax Holding Ltd. and Qifu Technology, which boosted their stock prices through dividend increases and investor collaboration. Both Triata and Yunqi representatives declined to comment.
Blue Creek also saw its previous losses wiped out, achieving a 15% gain this year. The $133 million hedge fund has been bullish on the Chinese market for the past year and plans to continue full-fledged investments, according to founder Joseph Zhang Xiaogang. Zhang stated that the valuation of the Chinese market remains very cheap and that despite the entrenched negative perceptions about China and its economy among global investors, the government has more policy tools to support the economy amid a cyclical slowdown caused by a weak real estate market.
Pinpoint China Fund achieved nearly a 12% return in September, boosting its year-to-date gains to 18%, according to knowledgeable sources. However, not all funds saw significant gains. For instance, WT China Fund, known for its balanced bullish and bearish bets, rose 1.7% in September and has gained 21% this year. Montreal-based Alpine Macro's Chief Global Strategist, Chen Zhao, suggested it's too early to determine if September's rebound is yet another false recovery in China's bear market since early 2022.
Nevertheless, Zhao noted that amid substantial stock buybacks and a competitive recovery in industry profits, the expected earnings for Chinese stocks in the MSCI Index have stopped declining. Many bad news events have already been priced in, and Chinese stocks are trading at a 60% discount relative to their U.S. counterparts and a 40% discount compared to European stocks. Zhao concluded that while there is no guarantee that improving profits and low valuations will immediately lead to Chinese stocks outperforming, they might represent a value investment in the long term.
