US hedge funds sold Chinese company stocks in Q2.

US hedge funds sold Chinese company stocks in Q2.

U.S. Hedge Funds Reduce Exposure to Chinese Companies Amid Economic Uncertainty

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In the second quarter, U.S.-based hedge fund investors have made significant adjustments to their portfolios, reducing their exposure to Chinese companies. Hedge funds such as Coatue Management LLC, D1 Capital Partners, and Scion Asset Management have taken this precautionary measure due to doubts surrounding China’s economic growth and escalating geopolitical tensions.

Coatue Management LLC, founded by Philippe Laffont, formerly of Tiger Management, has decided to cut its positions in several Chinese companies. Regulatory filings have shown that Coatue Management LLC reduced its positions in Alibaba, Baidu, JD.com, Kanzhun, KE Holdings, Li Auto, and PDD Holdings. Remarkably, the hedge fund slashed its position in Alibaba by approximately 90% between March and June. This move by Coatue Management LLC may indicate a lack of confidence in the Chinese e-commerce giant.

Joining the trend, D1 Capital Partners has sold all of its 1.7 million shares, worth $176.8 million, in Alibaba. The decision reflects a cautious approach towards Chinese investments amidst uncertain economic conditions. Similarly, Louis Bacon’s Moore Capital Management has reportedly sold over $200 million in shares of Alibaba, completely exiting its position in the company. Additionally, Michael Burry’s Scion Asset Management has liquidated small positions in both Alibaba and JD.com.

These changes in positioning have been revealed through the required 13-F filings submitted by institutional investors each quarter. Although these filings do not provide explanations for the changes in positions, they offer valuable insights for investors seeking to identify trends in the market.

The reduction of exposure to Chinese companies by U.S. hedge funds comes at a time when China’s reopening and potential economic surge had previously generated hope. However, recent data has shown an uneven recovery, dampening expectations. Moreover, the geopolitical tensions between the United States and China have intensified, leading to concerns among investors.

Another factor contributing to worries concerning China’s economy is the financial distress faced by its largest private real estate developer, Country Garden. The company is seeking to delay payment on a private onshore bond, marking the first time such action has been taken. This move has raised concerns about a potential cash crunch in the Chinese property sector.

In addition, U.S. President Joe Biden recently announced an executive order prohibiting certain U.S. technology investments in China. This development has further sparked concerns among fund managers, as it may impact the future prospects of Chinese companies operating in the technology sector.

The reduced exposure of U.S. hedge funds to Chinese companies reflects a cautious and strategic approach in response to the uncertain economic landscape and geopolitical tensions. While the 13-F filings provide a backward-looking overview of these adjustments, they offer valuable insights for market observers. As the situation continues to evolve, investors will closely monitor these trends to make informed decisions about their own portfolios.

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