Chinese quantitative hedge funds faced substantial losses in the first half of 2024, underperforming traditional stock strategies and prompting industry-wide concern.
Quantitative hedge funds focusing on China’s A-shares suffered an average decline of 8.6%, a significant reversal from their 3.2% gain in 2023. Particularly hard-hit were funds tracking the small-cap CSI 1000 Index, plummeting by 14%. In contrast, onshore equity hedge funds managed to limit their losses to approximately 3%, as reported by China Securities. This sharp downturn has prompted a critical reassessment within the $200 billion quantitative fund industry. By June, the number of Chinese quant hedge funds managing over 10 billion yuan ($1.37 billion) had decreased from 32 at the close of 2023 to 30, according to data from PaiPaiWang Investment and Management. Concurrently, regulatory scrutiny has intensified, with Beijing tightening oversight to restore retail investor confidence, particularly targeting practices such as short-selling and high-frequency trading.
The market turbulence of February 2024, labeled as China’s ‘quant quake,’ signified a pivotal regulatory shift. Quantitative funds that previously thrived on small-cap stocks faltered when state-backed investors redirected their focus to large-caps. According to PivotalPath’s CEO, recent regulatory reforms present significant challenges for these funds. Investors should anticipate potential market volatility as quantitative funds adjust to the new regulatory landscape and evolving trading practices.
Globally, investors are approaching China cautiously due to regulatory uncertainties and concerns over market size, underscored by comments from Sussex Partners’ Managing Partner. Meanwhile, the Head of Investor Relations at OP Investment Management emphasized that funds capable of swiftly rebounding from the disruptions of February will distinguish themselves. As Beijing continues to enforce stricter regulations, the performance of Chinese quantitative hedge funds will remain a pivotal indicator shaping future investment strategies in the region.
Related topics:
