Author: Zhou Ailin
More speculative international hedge funds have piled into Chinese stocks this year.
Recent 13F filings show big short Michael Burry is also long.
The MSCI China Index has rebounded by nearly 50% compared to last year's trough.
It is worth mentioning that in the past two years, international funds have pursued the theme of India and believed that India will be the "next China". Many QFIIs have even allocated Chinese funds to India in the past two years.
However, entering 2023, foreign capital will flow out of India significantly. Preliminary data shows that foreign capital sold about US$4 billion in January.
Indian billionaire Gautam Adani could jeopardize India's status as the top choice for foreign businesses in emerging markets as he grapples with a stock-shorting scandal.
The share prices of seven companies under the Adani Group in India continued to fall.
There are also views that this may have diverted more funds into the Chinese market.
The heads of the Asia-Pacific business of a number of leading asset management institutions with a scale of over one trillion US dollars interviewed by the first financial reporter said that compared with hedge funds, it is difficult for large mutual funds with longer-term investment layout to quickly switch from "low allocation" to "low allocation". Overweight", and even missed this wave of Chinese stock rebound.
However, whether these long-term foreign capital needs to be further increased still depends on the strength of the subsequent recovery of the Chinese economy, changes in policy stimulus, and changes in the geopolitical environment.
Hedge funds favor Chinese stocks
Bloomberg recently reported that Chinese stocks, once considered "uninvestable", are now standard allocations for hedge funds.
In fact, a Bank of America survey of fund managers found that long positions in Chinese stocks were seen as the hottest trade in the market.
Specifically, how investors will react to the surge in Chinese stocks in late 2022 can be seen in the 13F filings that large funds must file.
For example, according to data compiled by Bloomberg, they increased their positions in about 16 million Alibaba shares in the fourth quarter of last year, and the market value of the stocks they held increased by US$1.5 billion, more than any other stock listed in the United States during the same period.
This is also reflected in the rise of the stock index. The MSCI China index fell to an 11-year low in October, but in the last two months of 2022, the index has soared by 35%. So far, the increase has expanded to more than 50%. .
It is reported that Coatue Management, a technology heavyweight fund managed by Philippe Laffont, bought 4.8 million shares of Alibaba, the most among hedge funds; Segantii Capital Management, headquartered in Hong Kong, China, bought 3.2 million shares.
Overall, hedge funds hold 12% of all investors publicly disclosed in Alibaba, the highest percentage since 2015; Prototype in The Short Head.
He bought a total of $8.6 million in Alibaba and JD.com shares.
In fact, as early as January, China Business News reported that international funds were increasing their allocation to offshore Internet concept stocks, which have suffered heavy setbacks in the past two years.
According to the reporter's understanding, since the fourth quarter of last year, many international investment banks have begun to hold an overweight view on Chinese Internet companies. Some US funds have even allocated some oversold Chinese Internet companies earlier, such as Pinduoduo, Alibaba, Meituan etc. are listed.
Normalized supervision and prominent cost reduction results of platform companies will help boost investor confidence.
At the time, however, buy-side managers, especially long-term mutual funds, were hesitant.
Thomas Chong, a stock analyst at Jefferies, an international investment bank, said at the time that leading e-commerce companies JD.com, Alibaba, and Meituan are in a favorable position and may be the first to benefit from the economic restart; Benefit from strong execution and market share growth; including Ctrip and Tongcheng in the online travel field, as well as the online recruitment company BOSS Zhipin, the online car portal Autohome and the online real estate platform Keizhaofang, etc., may benefit from The economy restarts.
Increased Volatility in Indian Markets
In contrast, the Indian stock market has changed from a "sweet pastry" to a market for foreign capital to sell.
For international funds with global distribution, emerging markets are a concept of "pool".
There is no shortage of views that the funds that flowed out of India before may have also flowed into China, exacerbating the rebound in the Chinese market.
It is no exaggeration to say that 2022 is a year for India—the Sensex and Nifty indexes recorded increases of 4.9% and 4.3% respectively, while most global stock markets fell by around 20%; Thinking that India will be the "next China", many QFIIs have even diverted funds allocated from China to India in the past two years.
At the beginning of the year, the Indian giant Adani Group encountered disaster.
New York-based short-seller Hindenburg Research (Hindenburg Research) released a report in late January accusing Adani Group of engaging in "brazen stock manipulation and accounting fraud."
All of India's ports, airports, electricity, transmission, mining, green energy, gas distribution, cooking oil -- Adani is everywhere.
However, Adani Group's financial future is in jeopardy.
A number of international investors mentioned to reporters that the future of this billionaire and his business empire has even bigger problems and risks: India's clean corporate governance and the pursuit of a development model.
The government entrusts a small number of super-rich people to manage India's infrastructure and develop overseas investments, which has touched the red line of ESG investment.
Although Adani Group vehemently denies the allegations, as of Feb. 3, the market value of the tycoon's listed company has evaporated by more than $100 billion, and the stock issuance plan has also been cancelled.
Adani, once the world's third-richest person, has fallen to No. 17 on the Forbes Billionaires list.
Some media quoted sources as saying that the Securities and Exchange Board of India (SEBI) will inform the Finance Minister Sitharaman on February 15 of the latest progress in the investigation of the Adani Group.
The world's largest sovereign wealth fund, the Norwegian sovereign wealth fund with a scale of 1.2 trillion US dollars, recently stated that it has sold all the assets of its Indian Adani Group.
China's stock market may enter a 'period of volatility'
Although the influx of nearly 150 billion yuan of northbound funds since the beginning of the year also means that the Chinese market may enter a "shock period" after a sharp rebound.
There is also a view that mutual funds have basically maintained a low allocation, and more large investment institutions still have doubts about the sustainability of the rally.
If they hadn't been involved earlier, their chances of getting in now are low when the market has rallied almost 50% off its lows.
In fact, the view of domestic capital is closer to that of long-term foreign capital.
Su Xuejing, general manager of Qingli Investment, told reporters, "Whether it is quantification, public offering or private placement, after experiencing violent fluctuations in 2022, in order to survive, they are also forced to participate in volatile trading practices. A-shares, these investors will actively participate, which is not realistic.” In his view, domestic investment institutions are still waiting for the fundamentals and policies to be further clarified, which will still take some time.
Meng Lei, a China stock strategist at UBS Securities, previously told reporters that sentiment in the A-share market has declined marginally recently.
Some investors are observing the strength and speed of economic recovery this year, and waiting for policy signals during the "two sessions", so they choose to take profits in the short term.
In addition, channel research shows that some public funds face certain redemption pressure after the Spring Festival.
Some overseas funds through northbound trading will also reduce their positions in A shares, waiting for market opportunities.
However, in UBS's view, a market correction can be a good opportunity for deployment.
In terms of fundamentals, the macro team of UBS Securities expects that GDP growth may rebound significantly in the second quarter.
In terms of liquidity, the new issuance of public funds lags behind the performance of the stock market by about three months, so off-market funds are expected to enter the market on a larger scale in February.
At the same time, domestic private equity funds may also increase their stock positions to chase the upward trend.
As more economic rebounds emerge in the future, some long-term foreign capital will flow into the A-share market. This year, the net inflow of northbound capital is expected to reach more than 300 billion yuan.