Global coverage funds, eager to overcome commercial tensions between the US and China, are accumulating positions in Chinese actions with the expectation of obtaining great benefits, either if Beijing achieves an agreement with Donald Trump or if China and the rest of the world align against the US president.
Given its lower level of risk, these bets should not suffer great losses in any of the scenarios, according to several fund and investor managers. At the moment, The Hedge Funds have the greatest amount of Chinese actions in 12 monthsalthough the levels remain low compared to their history, according to a report by Morgan Stanley published on Monday.
The American Hedge Funds community, which represents most of the industry, assigns about 3 % of their portfolios to China, According to Morgan Stanley. In contrast, global funds directed approximately 60 % of their negotiation flows to the US in the week prior to February 14, according to another Goldman Sachs report.
The solid performance of the US economy, together with expectations for deregulation and tax cuts under the Trump administration, continues to promote markets in the US. Meanwhile, China faces a real estate crisis and high levels of debt, which keeps Hedge Caute Funds regarding investing in the second largest economy in the world.
The flow to China
However, those funds that avoided China lost a strong rebound in the actions since September. Promoted by expectations of economic stimuli, Chinese actions closed 2024 with their first annual gain since 2020. This has led some Hedge American Funds to return to the Chinese market, looking for cheap and low risk forms to do so.
David Aspell, portfolio manager at the Hedge Macroeconomic Fund Mount Lucas, of 1.7 billion dollars, said he bought purchase options that grant him the right to acquire shares only if they reach a certain price. These options were acquired at low cost, since the objective price is considerably higher than the current contribution value.
It also has exposure to Chinese indexed funds and individual actions, arguing that the pressure of tariffs will decrease, since Trump seeks a commercial agreement with China that favors the interests of the United States.
China’s choice
Trump promised to impose 60 % tariffs on Chinese imports before being elected, but since he assumed office he has reduced them to 10 %.
“China now has a choice. If you don’t join the club, USA could exclude it,” said Aspell. “In that case, China would have to find other markets to absorb its enormous export capacity, which may or may not be possible.”
Aspell added that it is optimistic about the possibility of a commercial agreement, although it acknowledges that the process could be complicated.
Boaz Weinstein, founder of the Hedge Fund Saba Capital Management, of 5,000 million dollars, stressed that some Chinese shares are below the cash flow levels after costs, indicating that they are undervalued.
“Some Chinese technology companies are profitable and are deeply undervalued, with attractive businesses and market leaders,” Weinstein told Reuters.
For his part, Jon Withaar, manager of a Hedge Fund of special situations in Asia in Pictet Asset Management, recently added some Chinese actions to his portfolio. However, he expressed concern about the composition of the recent rebound in the technological sector in China and the speed with which it occurred, so it acquired sales options such as coverage in case of a drop in index values.
Source: Ambito
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