Global Hedge Funds Bet on Chinese Stocks Amid Trade Uncertainty

As the US-China trade dispute continues, global hedge funds are increasing their exposure to Chinese stocks in anticipation of potential gains.

Lower-Risk Bets

Despite the ongoing tensions, hedge funds view Chinese stocks as a low-risk investment with potential upside. Morgan Stanley notes that funds currently hold the most Chinese stock in 12 months, but levels remain relatively low historically.

Attractive Valuations

Boaz Weinstein of Saba Capital Management points to Chinese tech stocks trading below their cash intake levels, making them undervalued. Jon Withaar of Pictet Asset Management also sees opportunities in China's tech sector.

Geographic Diversification

Bridgewater Associates believes geographic diversification is crucial in the current environment, with a preference for China. The firm highlights that rising global fragmentation will reduce correlations and potentially lead to significant returns for China assets.

US-China Trade Negotiations

Hedge funds are closely monitoring the US-China trade negotiations. David Aspell of Mount Lucas expects a trade deal that benefits US interests, which he believes will boost Chinese stocks.

China's Choice

Aspell argues that China faces a choice: align with the US or face potential isolation. If China chooses the latter, it will need to find alternative markets for its exports.

Market Volatility

While hedge funds are optimistic about China's long-term prospects, they remain cautious about short-term volatility. Withaar has purchased put options to hedge against potential declines in the Chinese stock market.

Investor Sentiment

BNP Paribas' Hedge Fund Outlook indicates that investors are reversing their exodus from China, with 7% seeking increased exposure. This trend contrasts with recent years, when capital outflows occurred.

Hedge funds are strategically positioning their portfolios to navigate the uncertain trade landscape, with the potential to generate substantial returns if favorable outcomes materialize.