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How US hedgies playing China

In China on 21/08/2015 at 1:38 pm

From NYT Dealbook

CHINA KEEPS INVESTORS GUESSING China continues to enchant Wall Street, despite its tumultuous and uncertain nature, Alexandra Stevenson writes in DealBook. “You could be dead right in the thesis and you won’t make money,” said Troy Gayeski, a senior portfolio manager at SkyBridge Capital, an investment firm that has $9.4 billion invested in hedge funds.

Some of Wall Street’s best-known investors were singing China’s praises at the beginning of the year. As the market soared, many hedge funds rode the bull run, raking in profits and posting double-digit returns.

The markets took a sharp turn in late June, with stocks 30 percent off their highs at one point. By the end of July, the capital devoted to Asia-focused hedge funds had dropped by $10 billion as investors ran for the exits, according to the research firm HFR.

Investors got blindsided by some of the government’s measures to stop the slide, including a ban on “malicious short-selling.” Stuck in limbo, hedge fund managers said they were unsure how they fared in the chaos.

The devaluation of the currency last week raised even more concerns about the economy. Yet China remains attractive for some. And investors ultimately know they cannot ignore China, given its size and influence.

The billionaire hedge fund manager Julian H. Robertson announced last week that he was putting money into Yulan Capital Management, a firm that focuses on companies in the greater China region. CDIB Capital International Corporation, the private equity arm of China Development Financial, recently raised $405 million for a fund focused on private equity in China and other Asian markets.

Wall Street investors are also finding new ways to play the turmoil. Penso Advisors, a hedge fund adviser, scoped out currencies that were affected by the renminbi devaluation in an attempt to profit from the shock waves.

But Chinese markets remain enigmatic, even to those who have seen opportunities in it. “People want to play China, but it’s much harder to play China because you don’t know the rules and they change all the time,” said Ari Bergmann, founder of Penso Advisors, referring to capital controls there.

Ray Dalio, the founder of the world’s biggest hedge fund, the $160 billion Bridgewater Associates, recently tempered his enthusiasm for China. “Even those who haven’t lost money in stocks will be affected psychologically by events, and those effects will have a depressive effect on economic activity,” Bridgewater said in its July note to investors.

Chinese stocks continued their volatility on Wednesday, falling 3 percent in morning trading in Shanghai before finishing the day more than 1 percent higher. The session “made little sense other than to highlight that investors have almost no faith in a monthlong government effort to stabilize them,”according to Reuters.

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