Hedge funds investing in Chinese stocks saw a surge in performance this week, following the announcement of China’s largest economic stimulus package since the Covid-19 pandemic in 2020, according to a report by Reuters citing a Goldman Sachs note.
China-focused hedge funds posted a 1.7% return this week through Wednesday, pushing their September gains to 3.2% and bringing their year-to-date returns to approximately 7.5%, the bank’s prime brokerage said in a client note seen by Reuters.
The wave of gains was sparked by policy easing measures unveiled by China’s central bank on Tuesday, which resulted in the largest single-day buying activity for Goldman Sachs’ prime brokerage since March 2021 and the second-highest buying spree on record, the bank noted.
Hedge funds were particularly active in purchasing single stocks across a range of sectors, including consumer products, industrials, technology, and materials.
Despite the increase in stock purchases this week, hedge fund exposure to Chinese equities remains below historical averages, hovering near five-year lows. This is in contrast to the higher exposure levels seen at the start of 2023 and back in 2020, according to Goldman Sachs’ data.
China-focused hedge funds have faced significant challenges in recent years, as growth in the world’s second-largest economy slowed. August economic data broadly fell short of expectations, putting pressure on policymakers to introduce more stimulus measures.
In light of these trends, several investment banks, including Goldman Sachs, UBS, and Bank of America, have recently lowered their 2024 growth forecasts for China. A recent survey by Bank of America also showed that allocations to China-focused hedge funds have dropped significantly, with U.S. investors reporting a 15% decline in their investments in these funds this year.
The policy stimulus has also benefited hedge funds trading across the broader Asian market. On Tuesday, these funds posted a 1.1% gain, bringing their September performance to 2.4% and their year-to-date returns to 9.3%, according to Goldman Sachs. While the funds saw a slight dip of 0.4% in August, they have still gained 9.2% for the year so far, as noted in a separate Goldman Sachs report earlier this month.
