Chinese stock pickers lead global hedge fund gains as markets swing
HONG KONG (Reuters) -Hedge funds focused on Chinese equities posted double-digit returns in the first half of the year, outperforming global peers, fuelled by a rebound in Hong Kong stocks and bets on artificial intelligence and "new consumption" firms.
Some fund managers said their more agile use of hedging tools also helped cushion losses during the market turmoil in April, triggered by U.S. President Donald Trump's announcement of "reciprocal tariffs" on all trading partners.
The Greater China Equities Hedge Fund Index tracked by With Intelligence delivered a 15% gain in the first half, topping the hedge fund data platform's regional and strategy benchmarks.
Hong Kong- and Shenzhen-based Triata Capital rose 45% in the first six months and 62% by July 15, following a 19% gain in 2024.
The $1.2 billion hedge fund has reaped rewards from its concentrated bets on undervalued AI software, data centers, internet platforms, and selected consumer stocks such as education and hotels.
"Even following this year's news on DeepSeek, we still see underappreciated upside in China's AI software space," said Sean Ho, founder and chief investment officer at Triata, which leverages a significant amount of alternative data.
Many internet companies' new business lines, empowered by AI technology, "present pure upside optionality."
Hong Kong's Hang Seng Index and MSCI China jumped 20% and 16%, respectively, in the first six months, among the world's best performers.
The rally extended into July, with previously lagging mainland stocks catching up. The Shanghai Composite Index just hit a new high for the year this week.
FountainCap Research & Investment capitalised on what it calls "cute economy", or companies that offer emotionally engaging products aimed at young consumers.
The $2 billion firm's flagship long-only fund was up 22% from January to June.
"Obviously Pop Mart is the best representation of this, but other things like pet care would fall under this too," said Steven Luk, CEO of FountainCap.
Shares of "blind box" toymaker Pop Mart, FountainCap's top holding, have surged roughly 200% so far this year.
The first half was not smooth sailing. Trump's unexpected tariff announcement and China's immediate countermeasures, sent shockwaves through global markets in early April. That triggered a 13% plunge in the Hang Seng Index on April 7 — its steepest single-day drop since 1997.
Still, prolonged geopolitical uncertainties have prompted Chinese fund managers to sharpen their use of hedging tools.
"We had rapidly increased hedging positions and significantly reduced net exposure of our portfolio during this period of wild market volatility," Hong Kong-based Golden Nest Capital said in its June newsletter.
That helped the fund, which targets high-quality, low-volatility returns, record a 12th consecutive month of positive returns.
SILENT BULL MARKET
While near-term volatility may rise as the deadline for a U.S.-China tariff truce approaches, fund managers are staying bullish.
FountainCap's Luk described the current China market as a "silent bull market", noting that global capital has yet to return and Chinese company valuations remain low relative to developed market peers.
Geopolitical tension is also abating. "It seems the market is pricing in gradual improvements, with little attention paid to the tariff deadline," Luk said.
Simon Hopkins, CEO of Singapore-based Milltrust International Group, a hedge fund allocator, said he plans to increase exposure to China in the second half, drawn by the country's AI innovations and precision manufacturing capabilities.
"There is going to be a huge recognition that Chinese technology is a place that is going to attract a lot of capital," he said. "The U.S. dominance in that area is being undone."
CHINA-FOCUSED HEDGE STRATEGY FIRST-HALF
FUNDS PERFORMANCE
Triata Equity long short 45.1%
Aspoon Equity long short 22.1%
First Beijing Equity long only 27%
Greenwoods - Golden Equity long short 20.4%
China Fund
Pinpoint - China Fund Equity long short 9.4%
Golden Nest Equity long short 10.1%
Ren Bridge Equity long short 9.2%
FountainCap Equity long only 21.8%
ForwardEdge Equity long short 16.3%
WT China Focus Equity long only 36.2%
Sources: Investors and funds
Note: WT and ForwardEdge did not immediately reply to Reuters' requests for comment
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