Hedge Funds Dumped Chinese Stocks At A Record Pace, Setting Stage For A Furious Rebound
Late last week, when observing the stunning collapse in the most popular "hedge fund VIP" basket, whose 6 month performance now matches its worst stretch on record following the Lehman bankruptcy...
... we pointed to Chinese stocks one of the key culprits, with Goldman noting that one third of hedge funds in Goldman's analysis held a China ADR in their long portfolio at the start of 3Q, contributing to the recent headwinds against hedge fund returns. Specifically, since the middle of February, a basket of China ADRs (GSXUCADR) has declined by 55%, with all but one of the stocks generating a negative return (UXIN being the exception) and 40 of the 46 stocks declining by more than 20%.
Naturally, with Chinese stocks continuing to slide, many were curious if hedge funds retained their Chinese exposure.
Well, courtesy of Goldman's Prime Brokerage we now know the answer, and it is a decisive no. But first, some weekly performance stats from Goldman prime focusing on Asia hedge fund exposure:
Performance Estimates (WoW as of 20th August 2021): Steep performance drawdowns last week as well as for the MTD period amid continued regulatory concerns
Asia Fundamental LS -2.4% vs. MXAP -4.4%
- Asia managers were down -2.4% last week as MXAP was down -4.4%. Along with beta, the main drivers of negative returns were Asset selection, Volatility, country tilts (China) and Concentrated Longs.
- MTD -1.3% vs. MXAP -3.1%.
- YTD -1.6% vs. MXAP -3.3%.
China Fundamental LS -3.2% vs. MSCI China -7.8%
After a few relatively calm weeks at the beginning of the month, China managers experienced steep negative performance of -3.2% as MSCI China was down -7.8% last week. Main Drivers of negative performance were beta, Volatility, Concentrated and Crowded Longs and short term momentum.
- MTD -3.9% vs. MSCI China -7.6%.
- YTD -5.1% vs. MSCI China -19.0%.
In light of these massive drawdowns, it is then hardly surprising that trading flows were striking, and according to Goldman, last week saw the second highest weekly net selling for Asian equities in over 5 years, the highest ever selling for EM Asia, while Asian equities in total, saw record weekly net selling flows last week.
- Asia was net sold WoW (-2.7 SD) with long sells exceeding short sells marginally in a ratio of 1.1 to 1.
- DM Asia was net sold (-1.1 SD) driven by short sells exceeding long buys significantly
- The record selling activity in EM Asia (-2.7 SD) was driven by long sells exceeding short sells in a ratio of 2.6 to 1.
- 10 out of 11 sectors were net sold last week – only Utilities was marginally net bought. The most net sold sectors were Consumer Discretionary, Communication Services and Info Tech.
- MTD Flows for August also point to record monthly selling flows in the region with risk off activity in EM Asia.
- Charts below focus on Chinese equities and show the cumulative trading flows by leg and type. Selling flows in the MTD period have been driven significantly more by ADRs, followed by A-shares and then by H shares.
With flows a one-way street of selling, it is only logical that exposure likewise saw a major hit, with continued reduction in Gross and Net leverages for Asia fundamental managers, resulting current levels last seen in April 2020.
The numbers for the Asia Client Book (Delta-Adjusted) according to GS prime:
- Leverage: Gross -0.6 pts to 220.8% (42nd percentile three-year), Net -4.6 pts to 71.7% (51st percentile three-year)
- Long/Short ratio (MV) -4.3% to 1.962 (49th percentile three-year)
Asia Fundamental L/S
- Both Gross and Net Leverages for Asia Fundamental managers continue on downward trend as seen in the recent past and are now at levels last seen in April 2020.
- Net Leverage and L/S Ratios are at 24th and 20th percentile respectively for three year periods.
- Leverage: Gross -5.4 pts to 175.6% (48th percentile three-year), Net -3.5 pts to 50.3% (24th percentile three-year)
- Long/Short ratio (MV) -2.3% to 1.804 (20th percentile three-year)
In short, last week is when hedge funds finally - and fully - capitulated in their Chinese (and Asian) exposure. And with little to no liquidation pressure left, it was obvious that Chinese stocks would ramp higher and on Wednesday equities stormed higher in Hong Kong, after the local Hang Seng index slid into to a bear market last Friday, surging for a third day while Chinese tech stocks also rebounded.
One of the more iconic casualties of the crackdowns -- the Nasdaq Golden Dragon China Index - soared 8% overnight, after solid results from JD.com lured investors including Cathie Wood.
In fact, so furious is the rebound in Chinese tech that as Bloomberg's Sofia Horta e Costa observed, investors are turning into speculative call-buying WSB daytraders, and are piling into bullish derivatives. To wit, sixteen of the company’s 20 most-traded Hong Kong stock options on Tuesday were calls, according to data compiled by Bloomberg.
One such contract, expiring Aug. 30 with a strike price of HK$200, jumped 400% on Tuesday (when Alibaba closed at HK$166.50 ) and saw another 120% of upside so far on Wednesday.
It was similar in the U.S., where about 700,000 call options changed hands, the most this year and more than double the volume of bearish puts. The trading activity follows a 21%, nine-day rout that dragged Alibaba to the lowest price since its 2019 Hong Kong listing, exacerbated by the abovementioned redemptions from China-focused funds.
Bottom line: with nobody left to sell, look for much more upside in Chinese tech names at least until Beijing pulls another shocker out of its sleeve and the liquidation returns with a vengeance.
https://ift.tt/3kfD12Y
from ZeroHedge News https://ift.tt/3kfD12Y
via IFTTT
0 comments
Post a Comment