Is Asia another disappointment for investors?

Sofya Kuhno, ACCA

Sep 20, 2023

Money continues to flow out of Asian hedge funds in 2023 as investors are disappointed with China's recovery pace, while the resilience of stock markets outside the region distracts their interest.

Funds headquartered in the Asia-Pacific region recorded a net outflow of $3.7 billion in the first half of the year, according to Preqin data. This followed a $30 billion outflow in 2022.

Foreign investors are losing interest in China, and hedge funds targeting the world's second-largest economy are paying the price.

According to Preqin, the number of active hedge funds focused on China decreased for the first time since 2012: as of June 2023, only five new funds were launched, while 18 were liquidated.

The reduction marks a significant shift for China's offshore hedge funds, which accounted for nearly half of new funds in Asia as recently as 2021, as investors sought to ride the wave of a once rapidly growing economy and capital markets. Beijing's actions against private companies, as well as growing geopolitical tensions with the US, have led to reduced returns and undermined global investors' appetite for Chinese assets.

According to Eurekahedge, funds focused on China are experiencing unprecedented losses for the second consecutive year. More than two-thirds of hedge funds targeting the local market lost money in 2022, and in the first half of this year, 62% of Chinese funds failed to make a profit.