CHINA: Hedge funds double down on China ahead of rate cut, Goldman says

Hedge funds favoured Asian emerging markets in the week to Feb. 15, piling into company stocks in China, Korea, Taiwan, and India, in moves that came just before China slashed its benchmark mortgage rate, Goldman Sachs research showed.

In a note published Friday and shared with Reuters late on Monday, Goldman Sachs said Asia was the most net bought region by hedge funds tracked by its prime brokerage – meaning buyers outweighed sellers.

China’s central bank on Tuesday announced its biggest ever reduction in the benchmark mortgage rate, lowering the five-year loan prime rate to 3.95 per cent from 4.20 per cent.

China’s ailing property sector remains a key drag on the economy and market sentiment. New home prices saw their worst declines in nine years in 2023, while the stock market is languishing since hitting five-year lows on February 5.

Andy Maynard, head of equities at investment bank China Renaissance, said the rate cut was very positive for the market.

“Overall, positive, showing the commitment and stature from both policy makers and central banks in terms of support and stability to the market and inject a measure of support,” said Maynard.

“This follows on from very good consumer and retail numbers over the Chinese New Year period,” he said.

The hedge fund trades were made up almost entirely of long positions – bets that an asset price will rise – and the region was net bought for the fourth straight week, said Goldman Sachs.

China, Korea, Taiwan, and India were net bought on the week, all led by long buys. This outweighed modest net selling of company stocks based in Thailand, said the bank.

Hedge funds favoured most stock sectors but trades focused on buying health care company shares and those that sold consumer products.

Info tech and industrial companies in Asia were net sold, said Goldman Sachs.