London-based Hugh Hendry’s Eclectica Credit Fund, positioned to profit from a slowdown in China economic growth, has performed strongly over the las
London-based Hugh Hendry’s Eclectica Credit Fund, positioned to profit from a slowdown in China economic growth, has performed strongly over the last couple of months reported the Financial Times this week. Few share Hendry’s bearish sentiment, who is well known for his contrarian views, but at a time when some of the world’s eminent hedge funds rack up losses, stuttering global economic growth seems to be playing into his hands. The fund is apparently up 38.6 per cent YTD thanks in large part to a magnificent August when it returned 22.5 per cent. The USD150million fund, which launched last year, expresses its bearish views through CDS (effectively a short position) on cyclical Japanese corporate credit, which has the largest exposure to Chinese demand.
China’s manufacturing may contract for a third straight month in September. A preliminary reading of 49.4 for a manufacturing index released by HSBC Holdings and Markit Economics would appear to follow a trend of 49.9 for August and 49.3 for July. A level of 50 separates expansion from contraction. Furthermore, Wu Xiaoling, China’s former deputy central bank governor, recently said the economy would cool next year. Some of Hendry’s CDS include Nippon Steel and JFE Holdings. One of the only other notable managers sharing Hendry’s bearish view is James Chanos whose short China fund bets against the Chinese property bubble via Hong Kong-listed companies. Greater China hedge funds lost -5.04 per cent in August according to Eurekahedge to leave them down -4.41 per cent for the year. In comparison, they returned +9.49 per cent in 2010.
