Shanghai-based macro hedge fund Banxia Investment Management, led by prominent manager Li Bei, is exiting its China bank positions as the nation’s deepening property crisis threatens to cascade into the financial system via rising bad loans, according to a report by Bloomberg.
The report cites Baxi as warning in a letter to investors dated 11 May, that risks in China’s mortgage and business loan portfolios are “rising rapidly”, driven by a sustained decline in real estate values and broader economic weakness. The firm has already sold most of its bank stock holdings—which previously accounted for over 10% of its portfolio—and plans to fully divest.
“The bad loan risk of the entire banking system is also rising rapidly,” Banxia wrote, citing mounting concerns over falling property prices eroding the collateral value underpinning trillions of yuan in loans. The hedge fund estimates that prices for existing homes have already fallen nearly 25% since June 2021, and could decline another 5% by year-end—matching average down payments and raising the specter of widespread defaults and foreclosures.
The firm, which manages more than RMB5bn ($700m), is positioning defensively despite a recent rally in Chinese financials. The CSI 300 Financials Index has climbed approximately 5% this month, buoyed by regulatory changes incentivising fund managers to increase exposure to underweight sectors like banking. Insurers have also stepped in as buyers, lured by high dividend yields and state encouragement.
Banxia’s bearish pivot diverges from this consensus and underlines a rising divergence among hedge funds on China’s macro trajectory. While many local asset managers are recalibrating to chase benchmark-aligned returns, Banxia is doubling down on its macro view that the real estate-driven loan deterioration will outpace any policy support for banks.
China’s banking sector is already grappling with margin compression amid ultra-low interest rates and ongoing recapitalisation efforts. Earlier this month, ICBC, the country’s largest lender, reported a profit decline as it struggles with squeezed spreads.
Despite its cautious stance on banks, Banxia continues to increase its long equity exposure elsewhere and is maintaining a 10-15% gold allocation to hedge against market volatility, according to the letter. The firm’s flagship macro fund has delivered a 15.9% annualised return since 2017, and is down 2.1% year-to-date through April, outperforming the CSI 300 Index’s 4.2% drop.
Li Bei, known for contrarian calls and outspoken commentary, has remained broadly optimistic on China’s long-term equity prospects. However, the fund’s recent move to unwind financials highlights a tactical hedge fund retreat from one of the market’s most systemically sensitive sectors as structural risks mount.
