Managers of Asia-focused hedge funds are revving up shorting strategies in the hope that volatility will return to the markets, reports AsianInvestor.net.
“I think the February sell-off marked the end of the bull market and was the beginning of a bear market,” said Eugene Kim of Asia ex-Japan fixed income hedge fund Tribridge Capital. “Risk appetite will be cut because of losses in the US housing sector. It is potentially game-over in the emerging markets if the United States tips into recession.”
Kim kicked off a discussion among regional hedge funds about the state of markets this year at last week’s GAIM industry conference in Hong Kong.
Zhang Haitou, CIO and managing director at Citic Capital in Hong Kong, doubts the A-share markets of mainland China can match last year’s epic performance. “We are cautious about the impact of capital flows,” he said. “The imbalances have been there so long. There is nothing easy for the rest of the year. Many prices seem exaggerated.”
A risk in China is if investment-led growth slows down, according to Ashutosh Sinha, managing partner of Amoeba Capital Partners, an Asia ex-Japan long/short equity fund.
He saw an analogy in India’s sharp correction last May, when many foreign investors sold first and asked questions later – and thus missed out on a swift recovery. Savvier managers are now recouping losses from last month’s volatility, and the industry has become conditioned to buy on dips.
“We’re now programmed to buy into any first market correction, though that behaviour may not be repeated in the event that a second correction downwards occurs,” said Samir Arora, managing director long/short India fund Helios in Singapore.
“Markets have been one way: up,” said Tribridge’s Kim. “For those of us with an arbitrage strategy, that has cost us in terms of shorts. I’m concerned, however, about CDOs defaulting. That appears to be where most of the leverage is.”