Weekly round up

Quant funds say China still a worthy bet

The Financial Times is reporting that despite investors reducing their exposure to the Chinese market, computer-based funds still find significant opportunities in China. The report highlights that while a considerable portion of foreign hedge funds initially flowing into China earlier in the year has diminished due to growing geopolitical tensions, certain European quantitative funds are now directing their attention towards the Chinese market.

Additionally, the report mentions that Aspect, a London-based hedge fund firm overseeing approximately $8 billion in assets, is establishing an office in Shanghai

Citadel and it's peers are betting big on the same stocks

Hedge funds such as Citadel are some of the most dominant players in the hedge fund industry, leveraging a consistent track record of outperformance to oversee a portfolio exceeding $1 trillion, often including a significant level of leverage. However, a recent report states that the rapid expansion of these funds such as Citadel has resulted in industry giants converging on many identical trades.

This trend has sparked concerns among regulators, investors, and traders. While Citadel's billionaire founder rejects the idea that his firm and its counterparts pose systemic risks requiring increased regulation, he does acknowledge the potential for widespread losses if all of them were to leave at the same time.

Hedge funds cut exposure to healthcare sector

In the past week, hedge funds have reduced their exposure to healthcare equities while favouring small-cap stocks, Reuters reports.

The report highlights that the healthcare sector has not kept pace with the S&P 500 index, which has seen a gain of over 18%. The S&P 500 Health Care index has experienced a decline of 4.39% this year. Despite this downturn, the report reveals that investors have injected $5.8 billion into the healthcare sector in the current year, surpassing last year's figure and ranking as the third-largest inflow among all sectors.

Asian hedge funds find it harder to make money in Japan as they pivot from China

Several hedge fund managers in Asia, who shifted their focus from China's sluggish markets to the surging stocks in Japan in 2023, have encountered challenges in generating profits. These challenges stem from a lack of local insights and the absence of a playbook to navigate Japan's economy, the third-largest in the world.

As the Tokyo stock market (.N225) unexpectedly experienced a 28% rally this year, fund managers opted to decrease their exposure to China and redirect their investments to Japan. According to a Reuters report, Japan-focused funds launched in 2023 surpassed those focused on China for the first time in 17 years. Specifically, 18 funds were targeted at Japan, while only 13 were directed at China.