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Hedge funds have massively sold shares of companies that are heavily dependent on China in recent weeks. Fears of stricter regulation by Beijing are taking a toll on sentiment.
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The new wave regulations in China frightens international investors. President Xi Jinping seems determined to curb the power of large private companies. Tech companies such as Tencent and Alibaba have already been called to account and have to resign to meet Beijing’s wishes. Private education companies are not even allowed to make a profit anymore. And for sellers of luxury goods, limits threaten as Beijing wants to redistribute wealth.
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The managers of hedge funds are therefore on the run. They reduced their exposure to Chinese companies and Western companies that are heavily dependent on China by 26 percent in the past month, according to calculations by the investment bank Goldman Sachs. Chinese stocks like the internet giant Tencent
of de taxidienst Didi
went out the door. But also the casino group Las Vegas Sands
I have those great interests in gambling paradise Macau, the car manufacturer General Motors
and the French luxury group LVMH
were dumped.
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Hedge funds generally respond much faster to new developments than regular investment funds. They also take more extreme positions. According to Goldman Sachs, the funds have diverted some of their assets to major US tech companies. The Nasdaq index touched another record on Friday.
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Role of China
“U.S. hedge funds are increasingly concerned about China’s role in the global economic system,” said Commonwealth Financial Network chief strategist Brad McMillan. ‘In addition, the resurgence of the coronavirus in Asia will play a role in the short term. What if China just gets the outbreak under control? Or close more ports?’
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This week there were still fears that China could stop the taxi service Didi Global
would nationalize. Didi only moved to the New York Stock Exchange in June. According to some sources, the city of Beijing would gain control of Didi through a ‘golden share’ that would give the government a veto over all decisions and one or more representatives on the board of directors. Didi denied the rumors on Saturday.
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Even the Belgian holding company Sofina warned when presenting its half year results Thursday that increased volatility due to uncertainty about China’s new rules has hurt the value of its portfolio by 2 to 3 percent.
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