$ 1 billion fund seeks alpha in China

“We have moved most of our long-only exposure to a hedged long-short exposure, the remainder [of] long only becoming much more diverse within China, towards broad sectors rather than individual stocks.

“The difficulty is to find a good long-short manager in China because the majority of them only hold small short positions. True consistent alpha is hard to come by in Chinese markets, ”Drago said.

AWP is not alone. Leading investors, including George Soros and Masayoshi Son, have also expressed concern over Beijing’s crackdown on the private sector.

Mr. Drago is uncertain whether the increased interventions will have the desired result. “The Chinese government wants everyone to be equal. I think it’s going to be extremely difficult for them to achieve that.

Its clients – a small group of family offices and high net worth individuals based primarily in Hong Kong – have mixed opinions.

“A lot of our clients have done business in China and have made a lot of money there. They are quite optimistic – they believe the Chinese government does not want to shoot itself in the foot. These are the conversations we had over the past month. Everything the government has done since then, however, seems to support my point. It doesn’t give up at all, ”Drago said.

Some Western companies in China remain optimistic. A survey by the American Chamber of Commerce in Shanghai (AmCham) found that 70% of those surveyed expected their income in China to grow faster than their global business over the next three to five years.

Some of the manufacturing has shifted from China to Southeastern countries such as Vietnam, where labor costs are lower, but technology supply chains are not moving. Some 72 percent of respondents to the AmCham survey said they had no plans to move production.

Tesla chief executive Elon Musk praised China at the 2021 World Internet Conference in east China’s Zhejiang province on Sunday. In a remote speech, Musk described China as a “global leader in digitization” and said Tesla would further expand its investments in the country.

Beijing’s regulatory zeal was also on display, with an official from China’s Cyberspace Administration telling the conference on Monday that tackling monopoly behavior and “disorderly expansion of capital” remained top priorities.

Back in Singapore, Drago noted that foreign direct investment in China has not declined, although regulatory intervention has increased. It is clear that many companies still clearly see merit in China’s history.

“So we’ll have to wait and see. Like everyone else, I’m waiting to see how things develop. But I am not optimistic. From an investor perspective, the risks have increased dramatically.

“The risk of something you own being permanently damaged is now much higher. The education sector is a good example. I don’t think it will ever come back.

He is not a fan of the downside buying strategy. “People say, ‘Oh, that’s the bottom. There are a lot of opportunities. It is not investment, it is speculation.