Anatole stems losses after China bets

“Anatole underestimated the power of this phase change.” George Yang

HONG KONG: Anatole Investment Management Ltd’s flagship hedge fund stabilised in April after the firm scaled back its bullish wagers on stocks.

The fund, which was hurt by bargain hunting for Chinese shares since late last year, dropped less than half a percentage point in April, according to people familiar with the matter who asked not to be named discussing private information.

The fund has lost about 22% this year, the people said. It managed Us$1.9bil (Rm8.3bil) as of March, one of the people said.

The smoother ride last month came after Anatole slashed the fund’s gross exposure – the combined value of long and short wagers – to less than 110% of fund assets, chief investment officer George Yang wrote in a commentary sent to investors in April.

It also cut net exposure – the difference between the two types of bets – to near zero. Both are indications of a more defensive stance.

Anatole’s struggles highlighted the perils of seizing opportunities to buy Chinese equities during the selloff. Many investors have remained on the sidelines, unable to tell when sentiment may turn a corner amid a raft of regulatory, political and inflation concerns.

Anatole started to bottom-fish the nation’s stocks in late 2021 “in the belief that a few buckets of Chinese assets were cheap enough and that China had begun to start a loosening cycle” and should outperform,

Yang wrote in the commentary seen by Bloomberg.

“The result turned out to be disastrous: we were wrong .”

Government crackdowns have enveloped industries as wide-ranging as ecommerce, ride-hailing and after-school tutoring.

The risk of Chinese companies being delisted from United States exchanges has also hurt sentiment. The Nasdaq Golden Dragon China Index ended 2021 57% off its February 2021 peak, only to dive another 28% this year.

Anatole’s fund lost around 10% in December, paring its annual gain to 4%, according to the people. What ensued was the worst quarterly loss since its 2016 inception, Yang said.

“Anatole underestimated and underappreciated the power of this phase change,” he wrote, referring to the end of the “Wild West”-like growth of Chinese private companies fuelled by state funding and venture capital money.

For now, the firm will be more selective in China investments, looking instead at more US companies, Yang wrote in the commentary sent out around the Easter weekend.

Anatole’s largest gross exposure remains in Greater China, and it’s net bullish on the region, Hong Kongbased chief operating officer Gary Lee told Bloomberg, while declining to comment on the numbers. It has invested in Chinese firms and those in the rest of Asia, the United States and Europe. Bloomberg