07/08/17

Hedge Fund Optimas Looks Around the World to Trade China Themes

To trade China themes, look around the world. So says Optimas Capital, which raised $300 million last year to rank as one of Hong Kong’s largest hedge-fund startups, reports Bloomberg.

About half of the hedge fund’s investments since its August inception have been in companies outside of mainland China and Hong Kong, Thomas Wong, the former Credit Suisse Group AG banker who founded Optimas, said in an interview.

The stock-focused market-neutral fund from Optimas, which doesn’t bet on market direction, returned 10 percent this year through June, said Wong. That compares with the 0.8 percent average for similar funds, according to a Hedge Fund Research Inc. gauge. Trades that have proven lucrative include bullish bets on Aisin Seiki Co., a Japanese car parts maker, and LG Chem Ltd., a South Korean chemicals company that also produces batteries.

Optimas is one of a new breed of hedge funds betting that foreign stocks are often more attractive proxies for China’s growing global trade influence than local companies. Offshore hedge funds have traditionally traded primarily Chinese stocks listed in Hong Kong and the U.S., contributing to crowded trades, such as the recent stampede into U.S.-listed Chinese Internet companies.

These foreign stocks "tend to be more liquid,” said Wong. "And China drivers will increasingly influence foreign stocks."

Bullish Bets

Optimas bought Aisin Seiki, which manufactures car parts such as transmission systems, as some Chinese carmakers boosted production of automatic vehicles. China accounted for 17 percent of Aisin Seiki sales in the year to March 31, according to data compiled by Bloomberg. Its shares have risen 11 percent this year.

The hedge fund manager saw a buying opportunity for LG Chem early this year when other investors took a bearish view on the stock after it failed to secure Chinese subsidies because of political tensions between China and South Korea. Optimas’s analysis concluded demand elsewhere would more than offset the China setback. The stock jumped 31 percent this year.

Optimas has also taken a bullish bet on Pigeon Corp., the Japanese maker of baby bottles, whose shares have climbed 39 percent this year. Wong said the company will benefit from China’s relaxation of its decades-old one-child rule, what he calls the nation’s most significant policy change for years.

The hedge fund is bearish on Chinese mobile phone carriers since the fund’s early days as they’ve come under regulatory pressure to cut prices while boosting data speed. Optimas has also wagered against European carmakers which are losing market shares in China to local brands, Wong said.

Wong is a former head of Hong Kong and China research and sales at Credit Suisse. He held a similar role at Bank of America Corp.’s Merrill Lynch unit and had led regional oil and gas research at UBS Group AG. Optimas is staffed by 17 former employees of global banks. Apart from its market-neutral hedge fund, it also manages about $100 million in a private-equity fund.