HONG KONG: Global fund managers sold U.S.-listed Chinese stocks and the index tracking them sank sharply, suggesting progress toward resolving disputes over their accounts was not enough to shake investor fears about the outlook for the sector.
As of Friday, U.S. long-only funds — or funds that don’t short sell stocks — and hedge fund managers were net sellers of those stocks during the third quarter, according to data from Morgan Stanley strategists. from last Friday. He gave no dollar figures for the sale, though it weighed on pricing.
The Nasdaq Golden Dragon index, which tracks them, has fallen more than 14% since an apparent breakthrough in a long dispute over their compliance with US audit requirements, underperforming the S&P 500 and the Hang Seng.
Chinese stocks trade in the United States as American Depositary Receipts (ADRs) – American securities that represent foreign shares of a foreign company.
Investors say hopes that the progress made could have improved sentiment towards Chinese ADRs, which include disadvantaged online giants Alibaba and JD.com, have been dashed by a flight of all kinds of risky assets as rates of global interest are increasing.
“We went through probably three cycles of optimism in 2022. Each time there is another wind that no one could have seen,” said Andy Maynard, global head of equities at China Renaissance Securities.
“First there was war, then we had Pelosi’s trip to Taiwan, and now we have inflation,” he said, referring to fighting in Ukraine and a trip to August by US House Speaker Nancy Pelosi, which has heightened tensions between China and the United States and across the Taiwan Strait.
U.S. regulators have long challenged China’s refusal to grant them full access to company accountants and audit documents, which had threatened their listing. But a deal reached in August paved the way for the start of audit inspections this month.
After a warm initial reaction, investors’ attention shifted. Alibaba’s trading volume, for example, is down and the little price support seen in the sector seems to come mainly from short hedging.
A fifth of short bets were covered by hedge funds during the quarter, according to strategists at Morgan Stanley. They said long-only managers are waiting for better economic news from China before adding exposure.
Alibaba and Tencent ADR are down more than 30% this year, while the Hang Seng index is down more than 25% and the Shanghai Shenzhen CSI 300 index is down more than 20%.