SHANGHAI, CHINA (HEDGECO.NET) – A growing number of China focused hedge funds have been coming to the markets lately. Many of these funds are aiming to take advantage of the trading opportunitiesarising from the increased level of volatility in China stocks. New hedge funds concentrating on such opportunities are springing up in larger numbers recently.
According to published reports, Dynasty Asset Management of Shanghai recently unveiled its China Opportunities Fund; such fund will track small-capitalization and midcap stocks. Another manager, Hong Kong’s Value Partners also launched the long/short equity hedge fund to take both long and short positions focusing on Chinese securities. It has been reported that Los Angeles based asset manager; Dalton Investments will launch a similar hedge fund in December.
Jacky Choi, senior fund manager at Value Partners, said the Chinese stocks are very volatile now, adding, “China is a very volatile market, in this market, you can’t be long all the time.” By taking long and short positions, hedge fund managers hope to profit from both sides of the pendulum. There are increasing speculations that currency risks may lead to a bear market for the Chinese stocks if this strategy is implemented.
Some currency analysts think the Chinese currency may appreciate if the Chinese fiscal policy makers decide to remove the artificial peg of the currency to the dollar. There is also a concern of increasing commodity prices such as oil which may help to increase costs across the Chinese economy, and may also lead to decreased earnings. Analysts don�t believe that a recent rally in China stocks can be sustained.
According to news reports, the Hang Seng index has been on a roller coaster and has plummeted 34% since May 2004, and has since that period advanced 36%. The new hedge funds may benefit from such wide swings, because it enables then to move in and out of the markets with increasing frequency.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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