‘Quant quake’: Man Group says China stock market rout mirrors 2007 US meltdown
- Unwinding of quantitative funds’ positions was so massive last week that it spurred Chinese small-cap stocks to underperform by a historic margin, Man Group says
- ‘Quant quake’ has revealed systemic financial risks as a series of interconnected events and highlights the perils of crowding and leverage, analyst Ziang Fang says
China’s equity rout a few weeks ago was exacerbated by quantitative funds stampeding to exit positions, akin to a 2007 episode in the US when such investors suffered an abrupt meltdown that roiled markets.
That’s the analysis of Man Group’s Ziang Fang, who said in a note this week that the unwinding of these funds’ positions was so massive that it spurred small-cap stocks to underperform by a historic margin. China’s intervention to stem the turmoil also caused significant market dislocations, compounding the losses for these funds, according to Fang, a portfolio manager at the world’s largest publicly listed hedge fund.
Crowded positioning and high leverage contributed to the Chinese quants’ woes, resembling the events of August 2007 when a number of US model-driven hedge funds saw similarly sudden losses, he said.
“China’s recent ‘quant quake’ has revealed systemic financial risks as a series of interconnected events and highlights the perils of crowding and leverage,” according to Fang, a Boston-based manager responsible for China and emerging-market strategies at Man Numeric, a quant investment division at Man Group.
05:39
Hong Kong stock market falls below 15,000 level, its lowest in 15 months
A spokesperson at the firm declined to comment on details of their China strategies.