By Summer Zhen and Xie Yu
HONG KONG (Reuters) - Asia's hedge funds are heading for their worst showing in a dozen years, with long-short stockpickers wrongfooted by volatility in China, while macro strategy funds riding big global shifts in interest rates shine.
China is loosening its rigid COVID-19 movement and testing controls, but the unpredictable impact of Beijing's drive to reduce economic inequality and President Xi Jinping's consolidation of power are among factors dragging on the performance of high-flying managers with long China positions.
The Asia market was broadly weak -- index provider MSCI's benchmark China index was down about 27% for this year to the end of November and its Asia ex-Japan index down almost 20%.
On average, Asian hedge funds fared better than the indexes, losing 9.1% through to end-November, Eurekahedge data showed.
If the trend continues, it would make for the worst annual performance since 2008. By strategy, Asia equity long-short funds lost 12% and Greater China long-short funds lost 14%, while Asia macro funds rose 12% and Asia multi-strategy rose 1%.
Past performance is no guarantee of future returns, as the disclaimer goes. The year has vividly illustrated how difficult stockpicking has been and the forces driving allocation decisions this year are lingering into 2023.
"The issue is that the market, so far, hasn't put much value on fundamentals," said Patrick Ghali, managing partner of hedge fund advisory firm Sussex Partners.
"None can predict when the market will reward fundamentals again. It feels like until such time, traders may be a better option versus managers that are reliant on markets trading on fundamentals."
GRAVITY BITES
Stellar performers have fallen back to earth as a triple whammy of rising global interest rates, regulatory scrutiny and uncertainty over how capitalism fits with China's economic goals have driven its widely-held growth stocks such as electric vehicle, e-commerce and other internet companies to deep losses.
Aspex Management (HK) Ltd, which logged gains of 54%, 96% and 30% in the three years since its inception in 2019 hit a speed bump, with its $7.4 billion equity long-short fund down 9.8% for the 11 months to November, according to a document reviewed by Reuters and two people familiar with the matter.
The long book, where top holdings included battered online retailers Alibaba (NYSE:BABA) and Sea, lost around 40%. The fund, managed by Hermes Li - formerly of U.S. hedge fund Och-Ziff - declined to comment.
Singapore's FengHe Group, founded by John Wu, the inaugural chief technology officer of Alibaba Group, saw its flagship FengHe Asia Fund lose 5% over the 11 months to November after a 27% gain in 2022, according to a document reviewed by Reuters.
FengHe did not respond to a Reuters' query.
Zeal Asset Management in Hong Kong has its $148 million long-biased fund down 31% as of Dec. 2, according to a document and a person familiar with the results.
Zeal said the firm holds "a much more constructive outlook" for the China equity market in 2023 due to accommodative policies in both COVID-19 and real estate, low inflation pressure in China and the market's historically low valuation.
EXITING TECH
Getting defensive on China, or at least getting out of the hard-hit technology sector, helped others.
"The old days of buying concept stocks or meme stocks are over," said Wong Kok Hoi, chief investment officer at Singapore-based APS Asset Management, which runs $2.4 billion in assets.
APS' offshore All China Long Short Fund fell 17%, while its onshore China long only fund was up 8% in yuan terms through November. Wong said he held a cautious view and has no exposure to internet platform or e-commerce stocks.
An even better performer, Hong Kong-based equity long-short Tairen Capital, earned a 15% return so far this year, according to people familiar with the results, mainly contributed by betting against tech stocks.
Its assets under management grew to nearly $6 billion from $5 billion in March 2022, one of the sources said. Tairen did not respond to a request for comment.
Big picture macro funds, which trade on economic and political shifts, also performed well, as U.S.-China tension and rising interest rates roiled financial markets.
Singapore-based Asia Genesis Asset Management's flagship macro fund rose 15% for the first 11 months, mostly thanks to shorts on U.S. and Japanese stocks, according to the firm.
Long positions in U.S. government debt and the Singapore dollar also helped through November when many macro managers were caught out by a sudden drop in the U.S. dollar.
"Our nimble active trading approach has worked out well," said Chief Investment Officer Soon Hock Chua. He expects similar volatile conditions in the year ahead, but welcomes that.
"Swinging range markets will be difficult for many but advantageous for active managers like us."