(Bloomberg) — In late January, Zhou Wang feared he’d made an expensive mistake. A month earlier, his hedge fund QQQ Capital had added to bets against airlines and hotels and shorted the S&P 500 Index, betting the coronavirus outbreak would worsen.
Instead, markets started the year strongly, and the trade was losing money.
Then he arrived in China’s tropical island of Hainan for his annual New Year holiday. Confronted by empty shops and shuttered restaurants usually teeming with tourists, he messaged his team and told them to hold the positions.
That tenacity paid off — the Singapore-based fund surged 77% in the first two months of the year as global markets tanked, while the average Asia hedge fund fell 0.6%, according to data provider Eurekahedge.
“After Wuhan was closed you could feel the panic,” Wang said in an interview. “Normally for Chinese New Year there would be people everywhere queuing for restaurants and going to the beach, but this year there was no one — everything was empty.”
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Apart from its shorts paying off, the fund also went long on the likes of Netflix Inc., online tutoring service TAL Education Group and internet gaming companies, betting demand would surge as people bunkered down at home.
The firm currently manages more than $200 million, with about half of those assets allocated to online education providers.
To help make its calls, the fund’s analysts have been poring over third-party data, checking the movement of car-carriers and monitoring the status of factories.
They also phoned Chinese after-school tuition providers to check class availability and timetables, and joined parents’ groups on Chinese social messaging service WeChat to ask their opinions of various services.
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Now QQQ is betting the market sell-off has been overdone, taking profit from its shorts as it prepares for the possibility of central banks releasing additional liquidity or cutting interest rates further to help economies rebound.
“China factory production has gradually resumed and that’s a good sign from a supply chain-perspective,” Wang said. “And we think the U.S. economy is too strong, we don’t think this is like” the global financial crisis.
Among other Asia-based hedge funds:
PruLev Global Macro Fund gained 9.4% in the first two months of the year. Despite its equities asset class falling 21% in February, it told clients in a newsletter that fixed income assets like Treasuries had become a top destination in “the flight to quality.”Phalanx Japan AustralAsia Multi-Strategy Fund, which focuses on Japanese convertible bonds, is up almost 10% this year through the first six days of March. The fund benefited as volatility returned, Chief Investment Officer Chris McGuire said. Adam Levinson’s Graticule Asia Macro Fund Ltd. returned 2.1% in February from bearish bets on U.S. and Taiwan stocks, and trading offshore yuan, Thai baht, and the Hong Hong and New Zealand dollars, according to a client newsletter.
(Adds other hedge fund returns at end of story.)
To contact the editors responsible for this story: Katrina Nicholas at [email protected], Peter Vercoe
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