Summer Zhen
HONG KONG (Reuters) – Global hedge funds increased their holdings of Chinese stocks for a fourth week in a row, joining crowds of investors trying to get ahead of a market recovery.
Sagging shares of the world’s second-largest economy have been rising since February as Beijing stepped up measures to address economic woes and macro data showed signs of recovery.
Hedge funds have been buying Chinese stocks in the last seven of eight weeks, Goldman Sachs’ team of prime brokers said in a note on Friday that Reuters saw on Tuesday. The purchase amount was not disclosed in the report.
China’s markets have unexpectedly outperformed the world’s major markets this year, with Hong Kong’s market up a third from its worst performance in January. The index is up 16% this year.
On Monday, Goldman Sachs raised its price targets for both MSCI China and the Chinese blue-chip CSI 300 index.
Some hedge fund investors are betting on the rally by buying call options as a way to capitalize big gains from rising stocks, Goldman Sachs said in a separate note Friday.
“The combination of ten-year allocations to China on both hedge and long-term mandates, as well as the rapid pace of recovery, has caught investors off guard in recent months,” analysts led by Kinger Lau wrote.
“The resulting pressure on productivity may have prompted investors to close tight gaps or increase positions in Chinese equities, which is likely to strengthen and fuel the rally as the positive spiral takes hold.”
In its latest moves to restore market confidence, China last week launched a 1 trillion yuan ($138 billion) stimulus bond issue and unveiled a series of measures to support the country’s struggling housing market.
However, not all investors are convinced by the economic recovery narrative.
Indus Capital, a New York-based hedge fund, remains underweight to China, although it has recently added a few stocks.
“The market continues to offer us more opportunities to go short than to go long, especially as we face more volatility due to ongoing economic challenges,” said Byron Gill, managing partner at Indus Capital, citing rising deflationary pressures in country.
(1 US dollar = 7.2392 yuan)