Asian hedge funds swoop in on shares of China’s sanctioned telecommunication operators, lured by dividend payouts

Long Corridor Asset Management is one of at least four Asian hedge funds that bought shares of sanctioned Chinese telecommunication operators, trading against a market sell-off

China Mobile offered a 7 per cent dividend yield and China Telecom 6 per cent, greater than the MSCI World Index yield of about 2 per cent

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The Nikkei stock index on display at a foreign exchange trading company in Tokyo on November 4, 2020. Photo: Reuters

Published: 7:35pm, 12 Jan 2021Updated: 7:35pm, 12 Jan 2021

Asia hedge funds including Long Corridor Asset Management bought shares of sanctioned Chinese telecommunications operators, trading against a market sell-off.

Long Corridor acquired a small amount of shares, Hong Kong-based Chief Investment Officer James Tu said. At least three other Asia-based managers also purchased shares, lured by handsome dividend yields offered by the already undervalued stocks, said people with knowledge of the matter, who requested not to be named because the matter is private. The four hedge funds manage about US$8 billion collectively.

The dumping frenzy created a buying opportunity for hedge funds seeking to profit from volatile markets in the twilight days of Donald Trump’s presidency. US investors are barred from backing companies deemed to be controlled by China’s military, part of Trump’s wider effort to clamp down on the world’s second-largest economy.

MSCI and S&P Dow Jones announced last week they would drop Hong Kong-traded shares of China Mobile, China Telecom and China Unicom Hong Kong from benchmarks. That prompted index-tracking funds to unwind positions at short notice, pushing the shares’ trading volume to 18 times the daily average of the previous three months. The world’s largest money manager BlackRock also reduced its holdings and plans to keep selling, a person familiar said.

“The technical selling that culminated on Jan. 8 provided an entry opportunity on these telecommunications names which are already beaten down,” said Tu, whose US$220 million hedge fund returned 46 per cent last year.

Shares of China Unicom sank as much as 11 per cent in Hong Kong on Friday, while China Mobile and China Telecom dropped around 10 per cent during trading hours. The companies have since recovered, partly helped by mainland investors.