China hedge funds caught out by abrupt market surge
Corrects to add closing quotation mark in paragraph 8
SHANGHAI, Oct 17 (Reuters) -China's abrupt and ferocious stock market rally has slammed some of the country's biggest hedge funds, forcing them to hastily cover short positions and take losses on their bets in the heavily regulated derivatives market.
Beijing X Asset Management, Techsharpe Quant (Beijing) Capital Management and Shenzhen Chengqi Funds are among the funds sideswiped when China's struggling stocks recovered a quarter of their value in less than a week in late September, following a raft of stimulus measures.
Their losses stemmed from short positions in China's stock index derivatives, which market-neutral fund strategies perforce use to hedge equity holdings.
Market euphoria as China showed serious intent to fix its ailing economy drove futures CIFc1 prices up sharply, causing losses on those positions that could not be offset by gains in cash holdings.
British hedge fund giant Winton's trend-following strategy was also upended by China's unexpected market reversal, forcing the firm to quickly unwind its bearish bets.
Regulators have clamped down on data-driven quant funds and tightened curbs on stock short-selling this year, rendering the market prone to wild swings, said Hu Bo, fund manager at Shanghai Professional Fund Management Co.
Hu said the drawdowns underscore the risk of relying too heavily on one strategy in China's moody market.
"Every strategy tends to hit the wall after a period of outperformance," Hu said. So, investors need to "embrace diversified investment strategies, and make more in-depth research."
Beijing X, which manages more than 10 billion yuan ($1.40 billion), recorded a drawdown -a peak-to-trough decline in value - of 5.6% in its hedging strategy in lateSeptember, according to broker data. Techsharpe suffered a drawdown of 5.2%, and Shenzhen Chengqi Funds 4.6%.
An index tracking China's "market neutral" strategies recorded a drawdown of 4.83% during the last week of September, and has barely recovered since. The correction is the second biggest in history, and rare for products designed to deliver absolute returns.
Chinese markets have been on a wild ride since Sept.24, when authorities unveiled rate cuts and policies aimed at salvaging this year's 5% economic growth target. The CSI300 index .CSI300 is up 20% since then.
"Quantitative strategies work only in a balanced market," said Tim Cao, a Shanghai-based hedge fund manager who is now switching to qualitative analysis. "In a crazy market, nearly all quant models become ineffective."
Winton declined to comment. Beijing X, Techsharpe and Chengqi Funds did not reply to Reuters' requests for comment.
QUANT QUAKE
Chinese index futures typically trade at a lower price than the stock indexes they are linked to, due to a shortage of tools that allow bearish short positions in mainland markets.
That perpetual discount turned overnight into a premium, dealing a blow to hedge funds.
On September 30, the spread .CIFsp.CF between the CSI300 index futures and the underlying benchmark index shot up to 142.80 points, the biggest in nine years. That blow-out nullified funds' hedging strategies as futures no longer helped offset positions in the stock market.
The swift change in the trend also upset trend-following strategies, such as at Winton. An index tracking trend-following strategies posted its first weekly loss in a month.
Winton, which manages around 6 billion yuan in China, suffered a roughly 8% drawdown, according to investors.
The money manager told investors in a recent meeting that bearish bets on Chinese stocks, energy and base metals affected performance, according to a memo obtained by Reuters.
Short positions in stock index futures had been unwound, while bearish commodities bets had been slashed by a third, Winton told investors.
Hedge funds operating in China have faced such pressures before. In February, market liquidity in smaller stocks seized up in what some dubbed China's "quant quake".
Investors expect these funds will take time to recover. China Merchants Bank's wealth management unit asked investors to be patient, and advised them against redeeming the products in haste.
"For funds who were forced to close short positions due to margin calls, the wounds won't be healed anytime soon," said Yuan Yuwei, founder and CIO of Water Wisdom Asset Management.
($1 = 7.1226 Chinese yuan renminbi)
Reporting by Samuel Shen and Vidya Ranganathan; Editing by Kim Coghill
免责声明: XM Group仅提供在线交易平台的执行服务和访问权限，并允许个人查看和/或使用网站或网站所提供的内容，但无意进行任何更改或扩展，也不会更改或扩展其服务和访问权限。所有访问和使用权限，将受下列条款与条例约束：(i) 条款与条例；(ii) 风险提示；以及(iii) 完整免责声明。请注意，网站所提供的所有讯息，仅限一般资讯用途。此外，XM所有在线交易平台的内容并不构成，也不能被用于任何未经授权的金融市场交易邀约和/或邀请。金融市场交易对于您的投资资本含有重大风险。
所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。
本网站上由XM和第三方供应商所提供的所有内容，包括意见、新闻、研究、分析、价格、其他资讯和第三方网站链接，皆保持不变，并作为一般市场评论所提供，而非投资性建议。所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为适用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。请确保您已阅读并完全理解，XM非独立投资研究提示和风险提示相关资讯，更多详情请点击 这里。
