All six long-only quant strategies tracked by China Merchants Futures fell more than 10% in the month to October 31, leaving year-to-date losses of at least 6%, as a tech rout hit hedge funds across Asia.
The firm’s data showed that all six also trailed behind China’s large-cap CSI A500 index, by as much as 4.4 percentage points.
Funds tracking the CSI 1000 index fell 16.7% in October, taking their annual losses to 13%, the same data showed. Strategies linked to the CSI 300 fell 11% and are down 8.5% for the year, as the benchmark had its worst month in over a decade.
The losses come after quant assets under management in China more than doubled in under a year to over 2.6 trillion yuan (about $384 billion), leaving the space crowded and vulnerable to a sharp reversal.
The AI/tech selloff
October’s declines were driven by a global AI/tech selloff, as investors grew skeptical about whether heavy AI investment would deliver sufficient returns.
The ongoing selloff was exacerbated by expectations that Democrats, now in power in both houses of Congress, will push stronger AI regulation and slow the build-out of data centres.
The Nasdaq 100 lost a record $2.3 trillion in market value on November 5. On November 6, the MSCI Asia Pacific index fell as much as 5.3%, and the Kospi plunged as much as 8.8%, which triggered a circuit breaker bringing trading to a halt.
According to reports, wealthy clients from Taiwan to Hong Kong faced margin calls on leveraged bets. Some investors in Hong Kong were also forced to take delivery of shares at a loss through structured notes, adding to the pain for those who had used leverage to boost returns on tech positions.
How Far Did Other Quant Strategies Fall?
Market-neutral quant strategies fell 3% to 5% in October despite their hedges. Products linked to the small-cap CSI 2000 kept some of their lead over the benchmark for the year, outperforming it by 18.5 percentage points, China Merchants Futures data showed.
Shenzhen Golden Axe Fund Sales tracked 68 products linked to the CSI 1000 which aim to beat the index. They declined by 9.3% on average in the last week of October. All but one are down for the year, and the worst is down 26%.
Goldman Sachs prime brokerage estimated that Asia stock pickers lost 9.4% in October, cutting the year’s gain to 14%. China-focused stock pickers lost 11%, leaving a gain of 16% for the year.
We reported in July that 73 CSI 1000 quant products lost an average 14% in the week to July 17 as the index fell more than 12%. Quant assets under management had more than doubled in under a year to over 2.6 trillion yuan (about $384 billion), as of that article.
Which Hedge Funds Reported Losses?
Hong Kong hedge fund Aspex lost 16% in October’s tech rout, according to people familiar with the matter. Valliance’s Long-Short Master Fund also fell 6.7% in October and CloudAlpha’s $2.8 billion Singularity Master Fund slipped nearly 3%.
Not every fund lost money. Chris McGuire of Eagle’s View Capital Management said his Japanese convertible-bond arbitrage fund gained an estimated 2.5% or more.
Author: Scott Danaher
See Also:
Wealthy China Investors Rattled as Quant Hedge Fund Losses Top 20% | Disruption Banking
Could Short-Selling Restrictions Stunt The Growth Of China’s Quant Market? | Disruption Banking
