A major hedge fund in China that cut its domestic stock exposure to zero expects returns to be worse than in 2008
- Shanghai Banxia Investment Management Center slashed its Chinese stock holdings to zero, Bloomberg reported.
hedge fund's founder said fears around COVID, Russia-Ukraine, and Fed rate hikesmake 2022 worse than 2008 for returns.
A top hedge fund in
Shanghai Banxia Investment Management Center founder Li Bei said COVID, Russia-Ukraine, and the Federal Reserve's rate hikes would make this year tougher for fund managers to get returns than 2008.
"This year is more uncertain," Li said in a WeChat post Monday. "The outbreak of war and the development of the epidemic in China this year have brought a lot of uncertainty."
Shanghai has been under a strict lockdown since late March amid a surge of COVID cases. Authorities put up fences around some residences in the city and closed some streets, as mass testing in Beijing also led to fears of a lockdown.
Li said that along with the ongoing Russia-Ukraine war, the Fed's strategy of rapidly raising interest rates from historic lows would add to the challenge, particularly for investors in long-dated fixed income.
Banxia's exposure to Chinese stocks was almost nothing at the end of last year, Li said, adding that this was not unusual given the market environment.
"As a hedge fund that pursues absolute returns, this is not uncommon. It is normal to take a long position when there is an opportunity, and not to do it when there is no opportunity," she said.
"I'm not saying the economy is more difficult or that there will be a financial crisis. I'm just saying that this year is more difficult for fund managers to get yield," she said.
So far this year, Shanghai's benchmark CSI 300 index has fallen by almost 23%, compared with a decline of 11% in the S&P 500, a drop of 7.6% in the Nikkei and a fall of 8.4% in the pan-European Stoxx 600.
Fed officials, including Chair Jerome Powell, signaled the central bank is likely to raise US interest rates by 50 basis points next month to bring inflation, which is running at its hottest in over 40 years, under control.
Investors largely expect the Fed to raise rates by 50 basis points at its next three policy meetings and there is a growing risk that this could hurt economic growth.
Regarding her fund's net stock position being reduced to zero, Li said, "As a hedge fund pursuing absolute returns, this is not a strange thing. It is normal to have more positions if you have a chance, and if there is no chance, you won't do it."
"More lockdowns reduce demand for commodities in the short-term which is an easing factor for commodity inflation, but lockdowns also create bottlenecks in the world's factory which causes more delays and potentially inflation in consumer
She said that, despite the difficulties, the war and COVID pandemic are in a more stable period and that risks in stock markets are getting smaller.
"Stocks are nothing more than a problem of correct pricing. As long as the price fully sets the risk of economic downturn, even if the economy really declines, it will not necessarily fall sharply."
- Three months into the general election results, Nifty closed in the green on four occasions
- Traffic likely to be hit at Delhi-Noida border in view of farmers' proposed tractor march
- Paytm shares hit upper circuit again at ₹428
- High valuations of the market creeping into PSU stocks, say analysts
- Mukka Proteins IPO to open on Feb 29; sets price band of ₹26-28/ share