‘Big mistakes’: Singapore hedge fund to shut after investors flee on wrong-way bets on China, Japan stock markets

Asia Genesis to shut macro fund after stock slump in Hong Kong, rally in Japan wrong-footed veteran managers
‘I have reached the stage whereby my confidence as a trader is lost,’ founder and CIO says in letter to investors seen by the Post

Hong Kong stock market

Jiaxing Li

Published: 11:35am, 23 Jan 2024

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Singapore hedge fund Asia Genesis Asset Management is closing down its flagship macro fund as investors bolted after its managers made “big mistakes” and lost confidence following wrong-way bets on Chinese and Japanese stocks.

The fund said it would return money to investors as it was the logical and prudent way forward to avoid incurring further losses, according to a letter to fund investors seen by the Post. Genesis suffered an unprecedented withdrawal of about 19 per cent of its fund in the first few weeks this month.

“We made big mistakes in the recent sharp Nikkei and Hong Kong moves, which went in opposite directions,” Chua Soon Hock, founder and chief investment officer, said in the letter. “I am astounded by the incredible Nikkei-Hang Seng spread that priced Chinese versus Japanese stocks at the same value as in 1991, despite current economic realities.”

The Hang Seng Index has tumbled more than 12 per cent this year up to January 22 to a 15-month low, while the broader market lost US$439 billion of market value, according to Bloomberg data, while the Nikkei 225 shot past a 34-year high. Overall, the Nikkei 225 has outperformed the Hang Seng Index by 64 percentage points in total returns since the start of 2023.

Chua Soon Hock, founder and CIO of Asia Genesis Asset Management in Singapore. Photo: Handout

The firm declined to comment. Chua did not immediately reply to a phone call and text message for comment. Bloomberg reported the fund’s closure earlier on Tuesday.

Chua, in an interview with the Post last month, called stocks in Hong Kong a “once-in-a-lifetime” opportunity to generate big upside. He added that the local stock market had priced in all the bad news, and that “risk reward is the best I have seen in 40 years of investing and trading.”

Instead, the market slumped further.

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“We made another mistake by trying to pick the bottom of the Hang Seng and the Hang Seng Tech indices,” he said in the letter to investors. “I still do not understand the inconsistency of China policymakers not fighting against deflation, leading to the continued loss of market confidence and prolonged bear market.”

Investors have turned bearish on Chinese equities as soon as the nation’s post-Covid recovery ran out of steam early last year. Foreign funds have pulled out more than 217 billion yuan (US$30.4 billion) from onshore-listed stocks over the past six months, while Beijing dithered about injecting more forceful stimulus or overturning its “three red lines” policy from August 2020 that has stoked US$100 billion of bond defaults among property developers.

Goldman Sachs said in a note to clients on Monday that the past three years were no doubt “a challenging and frustrating period” for investors and market participants in Chinese equities.

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Chinese stocks have suffered from a 61 per cent drawdown of funds by investors over the period, accompanied by a 30 per cent drop in total market capitalisation of stocks listed on the mainland, Hong Kong and the US, Goldman said.

Market valuation has also eroded by 56 per cent in terms of price-earnings multiple and fundraising across markets in Hong Kong and China markets has shrunk by 58 per cent, the US investment bank added.

“I have reached the stage whereby my confidence as a trader is lost,” Chua told investors in the letter on its immiment closure.

“The recent tough trading – October, November, December 2023 followed by a disastrous January 2024 – has proven that my past experience is no longer valid and instead, is working against me,” he added. “I have lost my knowledge, trading and psychological edge.”