Global Hedge Funds Aggressively Sell Chinese Stocks Amid Property Sector Concerns, Weak Economic Data
August 15, 2023 – According to a report by Goldman Sachs, global hedge funds have been “aggressively” selling Chinese stocks in response to heightened concerns over the country’s property sector and a recent batch of weak economic data.
The report reveals that all types of stocks were sold in early August, with A-shares, those listed in the domestic stock market, leading the sell-off, comprising 60% of it. Hedge funds have consistently sold Chinese stocks in eight of the last ten sessions, divesting both their long and short positions.
This consistent selling activity represents the largest net selling in Chinese equities over any ten-day period since October 2022 and is one of the steepest moves witnessed in the past five years.
Goldman Sachs estimates that hedge funds sold 70% of what they had bought in the first five days following the July 24 Politburo meeting, which had sparked hopes of stimulus measures.
The decline in Chinese stocks has also affected the New York-listed KraneShares CSI China Internet ETF, which offers exposure to China’s largest internet companies like Tencent and Alibaba. The ETF slumped 12% in August, marking the biggest monthly decline since February.
As one of the leading providers of lending and trading services through its prime brokerage unit, Goldman Sachs is able to track hedge funds’ investment trends.
Global investors have expressed concerns about China’s economy due to a confluence of recent events that have darkened the country’s economic outlook. Many view the policy response as insufficient, which has further fueled the selling of Chinese stocks.
On Tuesday, Beijing responded to intensifying pressure on the economy by cutting key policy rates to shore up activity. However, a broad array of Chinese economic data highlighted the challenges faced by the economy from multiple fronts.
Chinese property giant Country Garden is seeking to delay payment on a private onshore bond, while Zhongrong International Trust Co, a major Chinese trust company with significant exposure to real estate, has missed some repayment obligations.
Hedge funds have become increasingly cautious about their exposure to China, with several U.S.-based hedge funds reducing their positions in Chinese stocks in the second quarter. This trend was prompted by concerns over China’s economic prospects and geopolitical tension, as revealed in securities filings.
Furthermore, U.S. President Joe Biden’s executive order prohibiting some U.S. technology investments in China has also prompted investors to further reduce their exposure to the world’s second-largest economy.
Recent data from UBS shows that China’s semiconductor sector has also been heavily sold by hedge funds in the past two weeks.
Carolina Mandl in New York contributed to this report, with additional reporting by Summer Zhen in Hong Kong. The article was edited by Sonali Paul and Muralikumar Anantharaman.
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