Luis Stuhlberger, the CEO and CIO of Verde Asset Management, a Sao Paolo-based hedge fund managing BRL24bn ($4.8bn) and one of the country’s largest independent asset managers, is looking to China’s smaller companies after the selloff in China’s equity market at the start of 2024, according to a report by Bloomberg citing an investor note.
The note reveals that Stuhlberger’s flagship fund built a long position — via options — on an unnamed Chinese small-cap index. Both wager size and the index name were not disclosed.
In the note, the hedge fund described the move as a “small, opportunistic position” in light of Chinese stocks having a “horrendous” January and helping to send other assets lower, including Brazil’s benchmark Ibovespa index.
Since its founding in 1997, Verde’s flagship fund is up over 24,300% in terms of local currency after fees, and has seen almost double the annual return of the Ibovespa index. Last month, however, the fund fell 0.28% after fees, underperforming the 0.97% gain for the CDI rate — the benchmark for local hedge funds.
Chinese small-caps have struggled in 2024 due to growing concerns about the country’s economy and despite their popularity with Chinese retail and institutional investors last year. The CSI 1000 Index fell 15% this year and has underperformed blue-chip benchmarks, reflecting investors’ bets that measures to revive the market will prioritise larger firms. According to the report, structured derivatives and quantitative funds are seen to have amplified the recent selloff.
Like Stuhlberger, more investors are using options to capture potential upside in Chinese shares, according to the report. This shift can be seen in exchange-traded products, which track Chinese stocks and have just recorded a spike in option volume as traders prepare for a bounce in battered shares. Bank of America and EPFR data cited in the report also revealed that Chinese stocks just recorded their biggest weekly inflow on record, partly driven by state-backed investors.
