HONG KONG : China-focused hedge funds with an equity long-short strategy, which relies on stock picking, posted their strongest monthly performance in July since January, driven by a rally on hopes of monetary easing, Goldman Sachs said in a research note.
Chinese stocks rebounded in July as policymakers at the latest Politburo meeting clearly expressed support for capital markets and signalled the introduction of bigger easing measures to drive the economy.
The bounce came at a time when geopolitical tension and China’s faltering economic growth have led to global investors to bypassing Chinese stocks.
This year, China-focused long-short funds have returned more than 4 per cent, according to data compiled by Goldman on Monday.
But alpha returns, an indicator that partly reflects how difficult stock picking is, remains low at -4.2 per cent, according to the report, shared with hedge funds clients and reviewed by Reuters.
Goldman also said hedge funds had been significant net sellers of Chinese stocks this year through to the first three weeks of July.
But managers reversed course and were net buyers after the July 24 Politburo meeting, led by A-shares and to a lesser extent U.S. listed shares, partially offset by net selling in Hong Kong listed stocks, the bank said.
The major benchmark MSCI China has rebounded by about 7 per cent since the Politburo meeting, though markets have wobbled in recent sessions as policymakers have released few details of any measures.
Analysts from BofA Securities said in a note dated Monday that investors were wondering if this was a trading bounce of just a few weeks, a rally that could go on for months, or a major turnaround for the China market.
Macro funds and U.S. hedge funds have turned more bullish on China, while investors closer to the China market are more sceptical, as many have been burnt in the past, BofA said, adding the house was hopeful of a possible rally.
It advised investors to “buy on the dips” in coming weeks.
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