Hedge Fund Sees China Stocks Climbing in Spite of Trade War

(Bloomberg) -- Chinese stocks may rise 20 percent over the next three years even if conflicts with the U.S. persist, a $3 billion hedge fund manager said as the trade war between the nations kicked off.

If tensions ease over trade and technology, the gain could be as much as 50 percent, said Wong Kok Hoi, founder and chief investment officer of APS Asset Management Pte in Singapore. That compares with the CSI300 Index losing about 14 percent so far this year.

“Everything hinges on the outcome of negotiations,” he said, adding that markets may be choppy in the medium-term.

Wong is bullish even as tariffs start to bite after President Donald Trump ignited what Beijing calls the “largest trade war in economic history.” China’s strength in technology is one of the reasons for Wong’s confidence -- but it’s also a factor fueling tensions, as the White House sees a threat to U.S. national security.

The CSI 300 gained 2.8 percent on Monday, while the Shanghai Composite Index rose 2.5 percent. Investors may have been looking for bargains after both slipped into bear markets last month and trade tariffs came into force on Friday.

Buying Opportunities

Wong’s not the only one with an optimistic outlook: Chinese hedge funds have signaled a stronger intention to buy equities this month, after the market rout created buying opportunities, according to a report released last week by Shenzhen PaiPaiWang Investment & Management Co.

The APS China A Share Fund, with assets of $2.3 billion including related strategies, gained 2.6 percent in the first five months of 2018, beating a 5.7 percent loss in the CSI 300 and a 6.4 percent decline in the Shanghai Composite Index. The long-only fund returned an annualized 13.4 percent over the past five years, ranking in the top third of equity hedge funds investing in China, according to data provider Eurekahedge Pte.

Wong’s optimistic on sectors including China’s cyber security, big data and semiconductor industries, including Hong Kong-listed Semiconductor Manufacturing International Corp. But, he said, the biggest brawl with the U.S. may be over technology, not trade, as the Made in China 2025 program boosts cutting-edge industries such as robotics, new energy-vehicles, chips and software.

©2018 Bloomberg L.P.