Goldman Sachs has revealed that hedge fund allocations to China have reached their lowest level in five years, amid heightened investor apprehensions about the country’s economic prospects and regulatory landscape, according to a report by Reuters.
The latest data from the prime brokerage desk at Goldman Sachs reveals that hedge fund investments in Chinese assets have declined sharply, with allocations falling by approximately 20% over the past year. This drop has brought total hedge fund exposure to Chinese markets down to levels last observed in 2019, a stark contrast to the peak investments seen in 2021.
Several critical factors have contributed to the reduced hedge fund interest in China, including the country’s overall economic slowdown and problems in its real estate sector, which has previously been a significant contributor to economic activity.
Over the past two years, the Chinese government has also intensified regulatory measures across various industries, including technology, education and real estate, sparking increased volatility and uncertainty, which in turn have deterred foreign investment.
Persistent geopolitical frictions between China and major global economies, especially the United States, have further eroded investor confidence, while ongoing trade disputes, sanctions and diplomatic strains have contributed to a higher risk premium for Chinese investments.
Vincent Lim, Senior Analyst at Goldman Sachs, said: “The convergence of domestic policy shifts and external geopolitical pressures has created a highly challenging environment for hedge funds in China.
“This has prompted many funds to reassess their exposure and diversify into more stable markets.”
In response to the growing risks, several prominent hedge funds have scaled back their investments in Chinese assets. Tiger Global Management, renowned for its significant investments in China’s technology sector, has notably reduced its stakes in leading Chinese tech firms, while other hedge funds are reallocating their portfolios and increasing investments in regions such as India, Southeast Asia and Latin America, which are perceived to offer better growth prospects and fewer regulatory uncertainties.
