INTERNEWSTIMES.COM – A wave of optimism has swept through hedge funds trading Chinese stocks this week, fueled by the Chinese central bank’s unveiling of its most significant stimulus package since the 2020 COVID pandemic.
According to a note from Goldman Sachs prime brokerage, China stock-picking hedge funds have seen a 1.7% return so far this week, bringing their September performance to 3.2% and pushing year-to-date returns to an estimated 7.5%.
The bank’s prime brokerage witnessed its largest single-day buying spree since March 2021, and the second highest on record, following the announcement of the policy easing measures on Tuesday. Hedge funds primarily targeted individual stocks across various sectors, including consumer products, industrials, technology, and materials.
While hedge fund stock exposure to China has surged this week, it remains below historical highs and hovers near five-year lows compared to the higher levels seen at the beginning of 2023 and 2020.
China-focused hedge funds have faced challenges in recent years as growth prospects for the world’s second-largest economy dimmed. August economic data fell short of expectations, adding urgency for policymakers to implement more supportive measures. Investment banks, including Goldman Sachs, UBS, and Bank of America, have recently revised their 2024 China growth forecasts downward.
A recent Bank of America survey revealed that hedge fund investors have reduced their allocations to China-focused funds. In the United States, allocators surveyed reported a decrease in China-focused hedge fund investments of up to 15% this year.
The positive sentiment surrounding China’s stimulus package has also extended to the broader Asian region. Hedge funds trading stocks in Asia saw a 1.1% increase on Tuesday, bringing their monthly performance to 2.4% and their year-to-date returns to 9.3%, according to the Goldman Sachs note.
While August saw a negative 0.4% return for hedge funds trading stocks in the wider Asia region, they still recorded a 9.2% gain for the year, according to another Goldman Sachs note released earlier this month.
The recent surge in hedge fund activity in China suggests that investors are optimistic about the potential impact of the stimulus package on the country’s economic growth. However, it remains to be seen whether this optimism will translate into sustained gains for China’s stock market. (Red)
