Hedge Fund Manager Who Nailed 2015 China Crash Is Hoarding Cash

The Hong Kong arm of China’s biggest asset manager is amassing cash and building up short positions in a bet that the U.S.-China power games will escalate ahead of the American election later this year. Kyle Bass recently disclosed he his launching a 200x leveraged fund to short the Hong Kong dollar.

The market hasn’t fully accounted for the “extreme steps” that President Donald Trump might take in an attempt to shore up flagging poll numbers, said Gan Tian, chief investment officer of China Asset Management (Hong Kong) Ltd., who oversees almost $400 million in hedge fund assets.

Hedge funds in China sitting in cash
Hedge funds in China sitting in cash

“It could be to challenge China in South China Sea, it could be a military or diplomatic alliance with Taiwan that crosses the red line, or worse,” Gan said in a phone interview from Hong Kong. “If that happens it would ripple through the financial market immediately.”

Tension is building between China and the U.S. after a three-year trade dispute. Politicians in Washington are lashing out over the coronavirus outbreak, China’s treatment of its Muslim minority and its tightening grip on Hong Kong. Congress is mulling sanctions against Chinese officials and companies and proposing to curtail their access to capital and markets.

Gan cleared almost all of his positions in February and March, escaping the worst selloff since the financial crisis as the coronavirus spread globally. But even as markets have rallied, he’s still sitting tight.

“I cut my positions very quickly, sensing a major macro change, regardless of whether the individual stocks in my book have pretty financial numbers,” said Gan, who holds more than 60% of his assets in cash at the moment.

Gan has ridden out turbulent times before, managing to post a return of 14.9% in his Cayman-domiciled ChinaAMC China Growth Fund in 2015, a year when Chinese stocks were routed. It has returned 10% year to date. Since its inception in 2009, the fund has climbed 180.96%, beating both the Chinese and Hong Kong benchmarks.

Globally hedge funds have declined 4.8% so far this year even after the industry rose 2.5% in May on the back of a rally in the S&P 500 Index, according to data compiled by Hedge Fund Research Inc.

Hedge funds have declined in 2020
Hedge funds have declined in 2020

The conflict reached another level last month when Trump released an important foreign policy and defense report against China, Gan said. “The key acknowledgment of the 16-page report is that it proclaims China policy over the past two decades a failure,” he said. “In the future, it will be to constrain the growth of China.”

He is also shorting other sectors in Hong Kong, including property management, education and large e-commerce operators.

Big Chinese stocks have been pushed up by liquidity injections from the pandemic response and could now face a correction as China’s central bank tightens policy to a more targeted approach in aiding small businesses, he said.

While Hong Kong market faces considerable political risk, the city could stand to gain as more Chinese tech giants mull listings amid fears they will be forced to delist in New York, he said.

article originally published in full at Bloomberg.

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