Hedge fund returns hit by China volatility

Asia hedge fund performance suffered from a rout in Chinese stocks, with managers focused on the region taking on losses last month, according to Eurekahedge.

Asia ex-Japan strategies were down -1.16% in March, with the losses largely attributed to hedge funds with Greater China exposure, says the data provider’s latest report. This compares to the 1.79% gain by the MSCI AC Asia Pacific ex Japan index.

Losses among funds focused solely on Greater China took an even bigger hit, dropping more than the CSI 300 Index, which fell -1.5% during March to 2,086.97, a five-year low.

A worldwide shake-out in March of so-called ‘new economy’ stocks – such as technology and healthcare companies – caught out hedge fund managers on a global basis.  

Among Greater China strategies, a popular theme was to go long on new economy stocks, while shorting ‘old economy’ stocks, such as mainland banks with overseas stock listings and infrastructure-related companies.  

This had served China-focused managers well last year amid an anticipated credit crunch on the mainland and a tech frenzy fuelled by Alibaba’s plans to launch an offshore IPO. But the new economy bubble started deflating last month, triggered by a sell-off amid growing sentiment that tech stocks had become overvalued.

Mainland banks stocks did mount a brief rally towards the end of March after the China Securities Regulatory Commission said lenders would be allowed to issue preferred shares to raise capital.

Elsewhere in Asia, Japan hedge funds were down an average of -0.6% in March, marking their third consecutive month of losses. The benchmark Topix index fell 0.72% for the month.

Japanese strategies have lost a cumulative -1.9% in the first quarter on the back of the global tech stock selloff and fears that a national sales tax increase on April 1 (to 8% from 5%) would stagnate consumer growth.  

While Japan hedge funds have outperformed the Topix, which was down -7.6% in Q1, their losses are in sharp contrast to their 25% gain in 2013, which was the best among managers globally.