Hedge funds have risen 138% this year, with Chinese stocks being bullish

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(Bloomberg) – A fund manager who gained triple-digits by hedging risks in Chinese equities is now turning bullish on mainland shares.

Zhao Yuanyuan’s fund 500 million yuan ($ 75 million) Shenzhen Qianhai JianHong Times Asset Management Co. This year the tumbling market has returned 138% so far. His stakes on infrastructure, energy producers and Covid-19 drug makers helped boost profits, while he was wary of a new overall lockdown in China and a neutral overall war in Ukraine.

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As the local outbreak stabilized, the 41-year-old said he began to place more bets on an expected recovery in the next two to three months. His pivot is based on a larger shift among Chinese stock investors, who say the deep pessimism that engulfed the market seems to have peaked. As well as easing Shanghai’s week-long lockdown, the promise of growth-lifting stimulus is helping to turn that tide.

“Since last week, we have removed some of our short positions because life in Shanghai has a clear deadline and US inflation expectations are falling,” Zhao said in an interview last week. “The changes to the new China Flair Up and Covid policy are some of the reasons we’re looking at it before it becomes more bullish.”

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China’s CSI 300 index rose 1.5% this month, a rare major stock benchmark index in the world that is green for May. Year after year, however, it still lags behind the regional benchmark, despite falling more than 17%.

Read: Chinese stocks stand as rare winner in global equity route

Zhao manages the Infu No. 4 fund, which ranks first among more than 20,000 private-fund peers in mainland this year, according to fund tracker Shenzhen Pipaiwang Investment and Management Company.

The fund has increased its net-long stock position by about 60% of its investment. Zhao said consumers’ discretionary shares, especially autos and suppliers, could benefit the most from the upcoming relief rally. He is also considering a proposal by the European Union to ban Russian oil to measure the impact of inflation.

Adding to the signs of a turning point in Chinese stocks is a pickup of leveraged trade and overseas flows, which rose the most this year on Friday.

“We’ve reached a point where both the recovery of earnings – which has been affected by Kovid – and the valuation are working towards a change in stock,” Zhao said, adding that he would increase exposure in the coming weeks if daily trucking traffic and northbound flows for a better turn. Keep giving signals.

© 2022 Bloomberg LP


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