Hedge funds and other "fast money" investors have increased their exposure to Chinese stocks much more quickly than larger mutual funds according to Goldman Sachs strategists.
MSCI China rose 60% between the lows of end-October and late Jan, outpacing the 11% gain in the global equities market, after Beijing started lifting its strict restrictions aimed at curbing the spread of COVID-19.
But large mutual funds have been slower to jump on such opportunities than their more agile peers, according to a note on Monday from Goldman Sachs.
Since late last year, "Hedge fund investors have substantially re-risked in Chinese stocks, predominantly in offshore equities per GS Prime Brokerage," they wrote, noting hedge funds' net exposure in China relative to their total global equity exposures is almost at all-time highs. In contrast, according to Goldman, while fund managers have also been net buyers of Chinese stocks, "on our estimates ... they are still meaningfully underweight China in their allocations."
They said judging from their recent investor meetings, "long-duration capital managers" are somewhat hesitant to invest, particularly where there is a "high liquidity risk premium and long capital commitment period amid an uncertain US-China geopolitical environment."
MSCI China has dropped 9% in the past month, more than most other emerging and developed market indices, as the initial optimism around reopening eased, but Goldman still sees scope for further returns from Chinese stocks, largely from earnings growth rather than multiple expansion.
(Alun John)
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MINERS, AUTOS LIFT STOXX, FTSE (0845 GMT)
European shares are edging up with traders cautiously awaiting minutes of the latest Fed
meeting and a reading on U.S. core inflation due later in the week that could add to the risk of
interest rates heading higher for longer.
The STOXX 600 index is up 0.2%, with the basic resources sector and auto
and auto parts index leading gains up 1% each. The commodities-heavy FTSE 100 is
up 0.1%. Trading is a little muted because of a bank holiday in the U.S. though.
Miners got a boost by bets of demand recovery in China, and the auto index was lifted by a
jump in car parts maker Faurecia after an upbeat forecast.
France's Faurecia part of European car parts maker Forvia, shares surged almost 5% to the
highest level since June after Forvia's 2022 net cash flow beat expectations.
Prices of industrial metals and oil rose on hopes of a recovery in demand from top consumer
China with support from global mining supply disruptions and concerns that underinvestment will
crimp future oil supply while major producers keep output limits in place.
(Joice Alves)
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UP, UP AND AWAY (0802 GMT)
Asian shares edged up from their lowest levels in about one month but trading was slow ahead of minutes of the last Federal Reserve meeting and a reading on core inflation, with rising interest rates still seen as a risk for markets. In Europe, money markets show that investors are already betting on a peak European Central Bank rate around 3.75% by late summer, up from levels around 3.4% earlier this month. Investors are unwinding earlier bets after a string of hawkish comments from policymakers, forcing European shares to retreat further from one-year highs. ECB officials have highlighted their fears about stubborn underlying inflation. The central bank raised rates by 50 basis points this month and pre-announced another increase of the same size for March 16 but it kept an open mind about future moves, with most policymakers expecting another rate hike in May. Geopolitical tensions heightened again as U.S. Secretary of State Antony Blinken warned top Chinese diplomat Wang Yi of consequences should China provide material support to Russia's invasion of Ukraine, saying in an interview after the two met that Washington was concerned Beijing was considering supplying weapons to Moscow. Meanwhile, in a week when India hosts the year's first G20 finance and central bank chiefs meeting, from Feb. 22-25, tough global discussions over debt forgiveness for poor nations are going to get even trickier. China, the world's largest bilateral creditor, is under fire for playing tough on terms. Stand-out items on this week's economic calendar include the Federal Reserve's preferred inflation gauge, earnings reports from big U.S. retailers, global flash PMIs, and inflation readings from the euro zone and Japan.
Elsewhere, the race to buy Manchester United gathered steam with Jim Ratcliffe's company
INEOS confirming it had bid for the club, while a source told Reuters that U.S. hedge fund
Elliott Investment Management was also prepared to finance a takeover.
Any sale of the Premier League giant would likely exceed the biggest sports deal so far: the
$5.2 billion including debt and investments paid for Chelsea.
The Glazers began looking at options for record 20-time English champions United, 17 years
after they bought the Old Trafford club for 790 million pounds ($951 million) as part of a
highly leveraged deal.
Underlying the weakness in property markets, average asking prices for British residential
property rose by just 14 pounds in February from January, the smallest rise on record for a
month which normally sees a big seasonal increase, data from property website Rightmove showed
on Monday.
Key developments that could influence markets on Monday:
Economic data: Euro zone Feb consumer confidence
U.S. markets closed
(Anshuman Daga)
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U.S. HOLIDAY MAY GIVE EUROPEAN SHARES A BREAK (0745 GMT)
European futures point for positive start to the day for indices across the region,
mirroring gains in Asian shares as a U.S. holiday makes for slow trading, after the STOXX 600
slid to an almost one-week low on Friday as traders ramped up bets that Fed rates will be higher
for longer.
A slew of data out of the world's largest economy in recent weeks pointing to a still-tight
labour market, sticky inflation, robust retail sales and higher producer prices, has raised
expectations that the U.S. central bank has more to do in taming inflation, and that interest
rates will have to keep rising for longer.
Investors will focus this week on minutes of the latest Fed meeting and a reading on U.S.
core inflation that could add to the risk of interest rates heading higher for longer.
In the euro zone, consumer confidence data is due at 1500 GMT.
(Joice Alves)
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