Weekly update

Global hedge funds chase Hong Kong stocks rally

Global hedge funds, particularly those using a strategy of buying and selling stocks, are increasingly optimistic about China according to Reuters. UBS Group notes a surge in their purchases of shares listed in Hong Kong, reflecting a turnaround in the market since March. The Hang Seng Index saw its best month since January 2023, rising over 7% in April, outperforming major markets.

Despite the market's rise, hedge funds focused on trading stocks continued to buy shares of Chinese companies listed in Hong Kong, particularly in the technology and consumer sectors. Major stocks like Meituan, Tencent, and Haidilao witnessed significant increases last week. While many funds began the year pessimistic about China and favoured stocks in Japan and the U.S.

Efforts by Beijing to address the property crisis and improve corporate governance have also contributed. UBS recently upgraded China and Hong Kong stocks, while Goldman Sachs suggested a potential "re-rating" for China.

Some large global long term investment funds seem to be increasing their positions in China through Hong Kong stocks. Given recent market volatility in Japan and the U.S, investors may be seeking cost-effective diversification in Hong Kong or China, according to BofA Securities.

TOMS Capital Investment Management acquires stake in $21bn cereal manufacturer Kellanova?

According to a Reuters report, TOMS Capital Investment Management, an activist hedge fund based in New York, has acquired a significant but undisclosed stake in Kellanova, a US multinational food manufacturing company. Formerly known as Kellogg Company, Kellanova holds a market valuation of $21 billion.

Kellanova's portfolio includes the international cereal division of Kellogg's along with popular brands such as Pop-Tarts, Rice Krispies, Pringles, Eggo, Frosties, and Coco Pops. The current structure of Kellanova emerged from a company split in October, where another entity, WK Kellogg Co, assumed control of the North American cereal division. Following the report, Kellanova's stock price surged by approximately 7% in early Thursday trading, eventually closing at $61.18 by the end of the day.

Hedge Funds Buying Protection With Defensive Stocks, Goldman Says

Hedge funds switched gears in April, moving to safer bets after a long streak of buying. According to Goldman Sachs, they increased their holdings in defensive stocks while reducing their exposure to global stocks overall. Health care stocks saw the most investment, while consumer discretionary stocks saw the largest sell-off.

The report explained that this defensive move makes sense given the recent volatility in the market, driven by concerns about the economy, inflation, and corporate outlook. Despite being among the worst performers in the S&P 500 over the past year, defensive sectors like utilities and health care could benefit from the Federal Reserve's plan to keep interest rates up. This trend towards defensive stocks was evident in April, with pharmaceuticals, biotech, and health care equipment being the most bought.

Compared to tech stocks, health care shares are relatively cheap, which could attract investors looking for stability. This shift towards value shares is seen as a strategy to add defence and diversification to investment portfolios.