Hedge Funds at Sohn Make Bullish Bets on Long-Term Asian Growth


Hedge fund gurus are betting on the longer-term growth in Asia, picking winners from India to Japan and China as they look past market volatility brought on by Covid-19.

Money managers at this year’s Sohn Hong Kong Investment Leaders Conference touted a slew of bullish strategies for Asia, with changes in consumption offering particularly good opportunities, the fund managers said.

Anatole Investment Management’s George Yang is betting that a new batch of Chinese brands will disrupt fashion giant Zara, prompting his short call on parent Inditex. Sean Debow of Eurizon Asset Management touted healthy consumption upgrades in rural India as a source of growth in the local health-care industry. Oasis Management founder Seth Fischer was bullish on Japanese engineering firm Hazama Ando Corp., while CloudAlpha pitched China real estate services play KE Holdings Inc.

Five Takeaways From Pitches Made at Sohn Hong Kong 2020: TOPLive

Long Versus Short
Alp Ercil, ARCMLong: Lower-rated, long duration U.S. investment- grade bonds
Jeff Qiu, Jupiter Research CapitalAppeal of China quant strategies
Seth Fischer, Oasis ManagementLong: Hazama Ando in Japan
Sean Debow, Eurizon Asset ManagementLong: Rural India’s shift to healthy consumption
George Yang, AnatoleShort: Inditex
Nancy Yang, CloudAlphaLong: KE Holdings in China
Gabriel Grego, QuintessentialLong: Sun Corp.’s cybersecurity exposure
Aaron Stern, ConveriumLong: a Puerto Rico municipal bond
Jay Huck, Egerton CapitalShort: Arista Networks

Here’s a selection of notable calls Wednesday:

Lower-Rated Debt

In a low-yield world, there’s still good returns to be made from corporate debt. Lower-rated, long-duration U.S. investment-grade bonds may gain as much as 30% if spreads narrow to pre-Covid levels, according to hedge fund manager Alp Ercil at Asia Research & Capital Management Ltd., who has made double-digit returns from the strategy this year. His preferred basket of bonds include Apache Corp., Hess Corp.. and MPLX LP.

Short Cloud Player

Jay Huck of Egerton Capital is shorting Arista Networks Inc. Microsoft Corp. and Facebook Inc. make up 40% of sales but both companies are pursuing open source operating systems. This will reduce service revenue for Arista. Egerton’s price target is $150, or almost 30% below the current price. The stock rose 2.2% Wednesday.

Read more about Egerton’s short on Arista Networks

China Quant

Jeff Qiu, chief executive officer of Jupiter Research Capital Asia, expects quant strategies in China to offer attractive returns. Funds focused on China-listed, yuan-denominated shares operate in an under-concentrated market, he said. They will be able to deliver as much as 25% excess returns over benchmark indexes in the next five years, despite issues with hedging. That compares with 2% to 5% excess returns for peers in the more crowded U.S. market.

Japan Infrastructure

Fischer of Oasis is bullish on Hazama Ando Corp., branding the company as one of the “most compelling investment ideas” in Japan. He said the engineering company’s balance sheet is as solid as Dwayne ‘The Rock’ Johnson, with almost 100% upside from its current price. The company is sitting on loads of cash which it should use for buybacks, but it’s no value trap, he said. “Is it value? Absolutely. Is it a value trap? We don’t think so,” Fischer said. Hazama soared as much as 8.5% Thursday, the biggest gain in five weeks.

Read more about Oasis’s bet on Japan’s Hazama Ando

Short Zara

George Yang, founding partner of Anatole Investment, is shorting Zara owner Industria de Diseno Textil SA. Chinese fast-fashion makers are challenging Zara with faster product cycles, using technology such as AI and online distribution to better gauge consumer preferences. He assigned a January 2022 price target of 8.5 euros, 63% off its current price. Inditex fell 0.90% in Madrid.

Long Beike Property Platform

Nancy Yang, founder of CloudAlpha Capital, is long KE Holdings, an online housing platform in China. Apartments will become more difficult to sell in China due to government policies guiding the market, increasing the need for agents. KE, which has more than doubled since its trading debut in New York last month, could become a $136 billion company in three years, up from $50 billion now, she said. The stock jumped 3.9% Wednesday.

Indian Consumer Stocks

Debow, chief executive officer at Eurizon Asset Management in Asia, talked up the rise of India’s rural consumers who are adding wealth and adopting big-city consumption trends like natural health therapies. He touted six stocks, including Hindustan Unilever Ltd., Britannia Industries Ltd. and Dabur Ltd.

Cybersecurity Growth

Gabriel Grego, managing partner at Quintessential Capital Management, reiterated a pitch he made last month. He said Sun Corp., a Japanese company that owns a majority stake in Israeli cybersecurity provider Cellebrite is a buy. Sun has high entry barriers via proprietary technology, lots of cash and little debt, he said. And following a recent push by activist investors, the new directors and management are a lot more investor friendly. Sun climbed as much as 4% in Tokyo, the biggest gain in three weeks.

Puerto Rico Debt

Aaron Stern, managing partner of Converium Capital Management, sees an investment opportunity in Puerto Rico’s debt restructuring. He cited one municipal bond that’s worth buying. The 7.5% notes have been oversold, trading to yield more than 11%. At 68 cents on the dollar, there’s more than 20% upside, he said.

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