Hedge funds pile into Chinese stocks as stimulus sparks enthusiasm

Beijing’s rare stimulus blitz unleashed newfound optimism from hedge fund investors, who have been piling into beaten-down Chinese stocks like never before. Chinese equities saw the largest net buying ever from hedge funds last week, marking the most powerful weekly purchase on record, according to Goldman Sachs prime brokerage data. Hedge funds started flocking to Chinese stocks after the government announced a flood of stimulus measures in a bid to revive growth and avoid a deep slump in the world’s second largest economy. The array of policy steps included interest rate cuts and reducing the amount of cash banks need to hold, known as the reserve requirement ratio. The excitement was underscored by David Tepper of Appaloosa Management, who told CNBC last week that he’s buying “everything” related to China because of the latest government support. The high-profile investor even said he’s raising his usual allocation limit and is not hedging his big China bet. “I didn’t know that they were going to bring out the big guns like they did,” Tepper said. “They kind of blew away expectations on the fiscal stimulus … And I think there’s a whole shift.” Man Group, Burry It’s not just Tepper who turned bullish on China. Man Group, the world’s largest publicly traded hedge fund with $178 billion in assets under management, believes the central bank of China’s moves could be a gamechanger. “These policy reforms are expected to stimulate economic activity and improve investor sentiment, making China an attractive investment destination once again,” Nick Wilcox, managing director of discretionary equities at Man Group, said in a note. Michael Burry, best known for calling the subprime mortgage crisis, may have anticipated such a policy move. He dove into Chinese internet stocks last quarter as Burry’s hedge fund, Scion Asset Management, made Alibaba its top holding at the end of June. Chinese search engine Baidu and ecommerce platform JD.com were also big stakes in his portfolio. Beijing’s big stimulus also prompted BlackRock, the world’s largest asset manager, to upgrade Chinese stocks to overweight — with a caveat. “Major fiscal stimulus may be coming and prompt investors to step in, given Chinese stocks are at a deep discount to developed markets shares,” BlackRock strategists said in a note. “Yet we stay ready to pivot. We are cautious long term given China’s structural challenges.” Still, rising trade concerns — including further tariffs between the U.S. and China — and geopolitical disputes centered on the South China Sea and the status of Taiwan, could once again spoil the party. Former hedge fund manager Stanley Druckenmiller, who now runs his personal fortune through a family office, reportedly said he’s not interested in Chinese stocks under the current political leadership, regardless of the new policies.