To trade China themes, look around the world. So says Optimas Capital, which raised $US300 million last year to rank as one of Hong Kong’s largest hedge-fund start-ups.
About half the hedge fund’s investments since its August inception have been in companies outside of mainland China and Hong Kong, Thomas Wong, the former Credit Suisse Group banker who founded Optimas, said.
The stock-focused market-neutral fund from Optimas, which doesn’t bet on market direction, returned 10 per cent this year to June, Mr Wong said. That compares with the 0.8 per cent average for similar funds, according to a Hedge Fund Research gauge. Trades that have proven lucrative include bullish bets on Aisin Seiki, a Japanese car parts maker, and LG Chem, a South Korean chemicals company that also produces batteries.
Optimas is one of a new breed of hedge funds betting that foreign stocks are often more attractive proxies for China’s growing global trade influence than local companies. Offshore hedge funds have traditionally traded primarily Chinese stocks listed in Hong Kong and the US, contributing to crowded trades, such as the recent stampede into US-listed Chinese internet companies.
These foreign stocks “tend to be more liquid,” Mr Wong said. “And China drivers will increasingly influence foreign stocks.”
Optimas bought Aisin Seiki, which makes car parts such as transmission systems, as some Chinese car makers boosted production of automatic vehicles. China accounted for 17 per cent of Aisin Seiki sales in the year to March 31, according to data compiled by Bloomberg. Its shares have risen 11 per cent this year.
The hedge fund manager saw a buying opportunity for LG Chem early this year when other investors took a bearish view on the stock after it failed to secure Chinese subsidies because of political tensions between China and South Korea. Optimas’ analysis concluded demand elsewhere would more than offset the China setback. The stock jumped 31 per cent this year.
Optimas has also taken a bullish bet on Pigeon Corp, the Japanese maker of baby bottles, whose shares have climbed 39 per cent this year. Mr Wong said the company would benefit from China’s relaxation of its decades-old one-child rule, what he calls the nation’s most significant policy change for years.
The hedge fund is bearish on Chinese mobile phone carriers since the fund’s early days as they’ve come under regulatory pressure to cut prices while boosting data speed. Optimas had also wagered against European car makers that are losing market share in China to local brands, Mr Wong said.
Mr Wong is a former head of Hong Kong and China research and sales at Credit Suisse. He held a similar role at Bank of America’s Merrill Lynch unit and had led regional oil and gas research at UBS Group. Optimas is staffed by 17 former employees of global banks. Apart from its market-neutral hedge fund, it also manages about $US100 million in a private-equity fund.
by Bei Hu