Recent regulatory tightening has prompted two of China’s leading quantitative hedge funds Yanfu Investments and Zhejiang High-Flyer Asset Management to defend their industry amid calls for an outright ban on algorithmic trading, according to a report by Bloomberg.
The two firms, which manage over RMB100bn combined, published articles this week to address “misconceptions” about quant investing, with High-Flyer stating on its WeChat account on 17 July that quants are unfairly blamed for market fluctuations despite evidence to the contrary.
High-Flyer explained that quant strategies profit from diverse sources, including holding stocks with solid fundamentals and trading against irrational volatility. Their primary trading pattern, the “reversal factor,” avoids chasing surging stocks or dumping falling shares.
Yanfu Investments, meanwhile, argued that quant firms are lowering trading frequency and extending holding periods to enhance asset management capacity, emphasising their contribution to long-term investments through long-only stock-enhanced products.
The rebuttals followed calls from prominent economist Liu Jipeng for a “decisive” ban on quant investing, claiming such firms would decimate the smallest market participants. Liu’s stance gained widespread support on social media platforms like Weibo.
Quant firms face increasing scepticism in China’s retail investor-dominated stock market, especially after authorities punished two firms for violations during a market meltdown earlier this year. While authorities have imposed stricter rules on programmed trades, they have stopped short of implementing measures that would severely impact the industry.
The suspension of China Securities Finance’s securities lending business earlier this month was widely praised, with Weibo commentator Pi Haizhou arguing that quant trading, which he claimed profits from small investors’ losses, “shouldn’t be tolerated.”
Regulators have pledged to tighten supervision of quant trading and increase the costs of high-frequency trading to reduce its speed. Private stock quants’ combined assets under management fell by 35% in the first half of the year to RMB780bn as of 30 June, according to Citi Securities, due to restrictions on short selling impacting long-short products.
