Top China Hedge Fund Urges Clients to Pull Cash on Trump Risks
(Bloomberg) -- One of China’s largest hedge funds advised some clients to pocket gains as Donald Trump’s return to the White House increases risks to the Asian nation’s economy and markets.
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Shanghai-based Perseverance Asset Management, which manages more than 100 billion yuan ($14 billion), suggested that investors in a range of products run by its star fund manager Deng Xiaofeng should consider redeeming, according to a notice sent to distributors seen by Bloomberg. The notice cited positive returns so far and potential risks following the US election result.
There will be growing pressure on China’s exports, which, coupled with exchange-rate fluctuations, will result in a “complex environment” and more uncertainties, Perseverance Asset said in the notice. Investors could consider readjusting their asset allocation, it said, adding that the window for redemptions will close on Nov. 13.
It’s rare advice in an industry that typically does all it can to grow assets under management. Chinese shares have rebounded strongly since September after officials unveiled a stimulus package to shore up the economy. But that was before Trump’s victory this week brought the potential for adverse events such as a renewed trade war.
UBS Group AG said in a note Thursday that a Trump win poses challenges for China’s stock market, but remained neutral on the assets given relatively low valuations. The market would also watch closely if the government will take proactive steps to ramp up policy stimulus, the UBS analysts added.
Trump has pledged to impose 60% tariffs on imports from China, a move widely expected to add pressure on growth that economists say may struggle to meet the official target of around 5%.
“With Trump taking up the reins, it’d deal a more blunt blow to investors’ risk appetite in China markets should he follow through on the tariff pledges,” Citic Securities Co. analysts led by Chief Economist Ming Ming wrote in a note on Monday.
The benchmark CSI 300 Index had gained about 30% from mid-September, when it hit the lowest in more than five years. The gauge jumped 3% Thursday before paring some gains Friday as investors awaited more clarity on further stimulus from a key legislature meeting.
Perseverance Asset said the notice was a regular reminder about dates when redemptions are open to clients monthly, and should not be over-interpreted. The firm remains “optimistic” about the market outlook while monitoring “cautiously,” it said in a reply to Bloomberg. Shanghai Securities News reported the notice earlier.
The relevant products’ three-year lockup has just expired, and some clients with lower risk appetite previously expressed intentions to pocket gains after net asset values hit new highs this year, according to the reply. The notice was only sent to investors in some products managed by Deng, and is unrelated to its other fund managers.
Deng’s Xiaofeng No. 2 funds returned 32% in the first three quarters, nearly double that of CSI 300. But the potential mid- to long-term gains are expected to be relatively low as its stock positions were reduced to around 60% as of end-September, according to a transcript of a client meeting last month seen by Bloomberg. Economic fundamentals and corporate profits have yet to bottom out, prompting it to stick to a relatively cautious stance, the company said then.
Calls for client redemptions are unusual among fund managers because they shrink fee income that’s derived from the size of assets under management.
Quantitative trading giant Zhejiang High-Flyer Asset Management gave similar advice for investors to withdraw cash in early 2022. Yang Dong, the former head of Aegon-Industrial Fund Management Co. in 2007 urged investors to pull out of stocks amid frenzied trading.
Perseverance Asset’s holdings in 35 mainland-listed companies where it was among the largest 10 shareholders of circulating stocks totaled 40.6 billion yuan as of June 30, according to filings data compiled by Shenzhen PaiPaiWang Investment & Management Co. Computers and non-ferrous metals were the sectors with the biggest exposures, according to the consultancy, which tracks Chinese hedge funds.
Deng, who’s also chief investment officer and among the best known of the company’s six senior fund managers for his track record, alone held 19.4 billion yuan of those shares, led by Zijin Mining Group Co. The stock price of China’s largest listed metals producer has jumped more than 400% since Deng’s funds appeared among top shareholders in the third quarter of 2019, according to PaiPaiWang.
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