An Asian hedge fund that trounced peers by shorting China-related shares during a market rout last year is still bearish on Asia’s largest economy, while seeing the region’s best opportunities in Vietnam and the Philippines.
Deng Jiewen (鄧杰文), who is part of a five-member team led by Matt Hu (胡猛) managing the US$80 million FengHe Asia Fund (風和亞洲基金), said in an interview from Singapore that Southeast Asian economies are doing a better job than China in boosting domestic consumption and attracting foreign investment. Chinese stocks face a difficult road ahead because of deteriorating earnings, Deng said.
The fund surged 20 percent in the past year as Asian stocks tumbled.
FengHe is among a handful of hedge funds capitalizing on investments in Asia’s smaller markets as the outlook for China has soured. Singapore-based hedge fund firm Kingsmead Asset Management Pte Ltd last year called Vietnam the “brightest star in a dark night” in southeast Asia.
“We remain quite positive about the Vietnamese economy and corporate earnings growth,” Deng said. “The Philippines has a strong demographic and economic structure. The country is becoming more friendly to foreign capital now.”
The Vietnamese government’s targeted growth of 6.7 percent for this year would be among the world’s fastest, girded by rising domestic demand and foreign investment. Overseas investors added a net US$100 million to their Vietnam stock holdings last year, the 10th straight year of inflows, while other Asian markets suffered outflows.
In the Philippines, foreign direct investment jumped 16.4 percent in November last year to US$464 million, bringing the total for the first 11 months to US$5.5 billion, according to central bank data.
In the year ended January, FengHe ranked in the top 2 percent of the 188 Asia ex-Japan funds tracked by data provider Eurekahedge Pte. The fund was not immune to losses earlier this year as global equities tumbled amid commodity-price declines, currency volatility and credit-rating downgrades. The fund lost 3.8 percent in January, as the MSCI Asia Pacific Index tumbled 8 percent to a three-year low.
Deng pared his holdings in Chinese companies prior to June, when the stock market starting tumbling amid concern the nation’s soaring levels of margin debt were unsustainable.
The fund also shorted Chinese shares in Hong Kong last year. The Shanghai Composite and the Hang Seng China Enterprises Index have both tumbled more than 40 percent from their peaks last year.
“Most investors recognize the valuation in the market has become cheaper,” Deng said, referring to China stocks.
“Having said that, earnings growth has also deteriorated for a majority of the sectors and some companies might even see profits drop this year,” he said.
The FengHe fund is run by F&H Fund Management (風和投資管理), an asset manager cofounded by Hu and John Wu (吳炯), the former chief technology officer of Chinese e-commerce company Alibaba Group Holding Ltd (阿里巴巴). The fund favors sectors tourism, new energy vehicles, healthcare and consumer shares in Asian markets.
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