Hedge funds see upside from Asian stock rally

05 September 2014   Category: News, Asia, China, Global, Hong Kong, Japan   By Hui Ching-hoo

Hedge fund and absolute return managers have generally caught the upside stemming from a rally in Asian stock markets in July, while Chinese managers have finally seen some fruits from the country’s economic reforms, according to GFIA.

The fund consultancy said in a report that the MSCI AC Asia Pacific ex Japan index finished up 3.5% in July, with the majority of Asian country indices positive. The hedge fund benchmark AsiaHedge Asia ex Japan – USD was also up 2.3% during the period. 

“Good two-way contributions in India coupled with positive long performance in China/Hong Kong were the primary positive contributors to Flowering Tree’s Ashoka Fund (2.9%). Dalton Asia Fund (1%) underperformed the benchmark as their short positions in Japan did not play out well in the upward-driven market. Nezu Asia registered a 2.5% return in July with positive contribution from its Japan and China books,” GFIA said.

“The Japan book was the most active amidst the earnings reporting season and contributed 5.1% and -1.2% on the long and short side, respectively. With improving market sentiments in ASEAN, Binjal Hill Asia Acorns Fund (2.3%) has increased its long gross exposure from 66% to 83%, raising the number of positions by 17.”

In July, the Japanese stock market rallied as foreign investors continued to be net buyers, with an improved view on Japanese stocks; TOPIX and the Nikkei were up 2.1% and 3%, respectively, for the month. Japanese managers generally tracked the indices; UMJ Kotoshiro was up 2.1% with contributions coming from single stock selection. The portfolio manager has reduced its net exposure to 25% as the long and short portfolios are starting to indicate similar beta figures.

As for Greater China, the report indicated that the Chinese onshore and offshore markets had a strong rally on the back of easing by the People’s Bank of China and the removal of home purchase restrictions in various cities. The onshore market was also boosted by foreign buying ahead of the expected launch of Shanghai-Hong Kong Stock Connect in October.

Against this backdrop, Orchid China (1.7%) continues to harvest profits from its internet names as investors bought into these in anticipation of good earnings releases in July and August. Zeal China Fund (2.5%) had a good month as the portfolio manager has been building up its gross long exposure for the past several months.

GFIA added that Golden China Fund (6.2%) and Spring China Opportunities (6.5%), both with significant allocations to A-shares, saw their performance soar during the month. Both funds have also been adding undervalued blue chips in the ‘Old Economy’ theme.