Asia’s Hedge Funds Keep Faith in Tech Stocks Despite AI Selloff

(Bloomberg) -- Some of Asia’s biggest hedge funds are maintaining their faith in technology companies, despite the recent selloff in artificial intelligence stocks that’s blunted an otherwise stellar start to the year.

Dymon Asia Capital Singapore Pte’s $2.5 billion Asia Multi-strategy Investment Fund and FengHe Fund Management Pte’s $3.6 billion fund both posted double digit gains. CloudAlpha Capital Management’s Singularity Tech Fund gained 28% in the first half, according to a person familiar with the matter, who requested not to be named because the information is private.

The region’s hedge funds are enjoying a good start to 2024, after two years of turmoil. The Eurekahedge Asian Hedge Fund Index was up 4.6% during the six months ending June.

China remained a source of pain. Hedge funds focusing on the country continued to suffer, with the Eurekahedge Greater China Hedge Fund Index returning just shy of 1% in the first half, significantly underperforming other regions.

Tech Winners

FengHe Fund Management Chief Executive Officer Kwek Hyen Yong said its analysis of the technology supply chain helped it pick big winners including South Korean memory maker SK Hynix Inc. and chipset designer ARM Holdings Plc.

As prices spiked, the firm took profit by selling some of its positions in June and managed to avoid being wiped out in July when investors started to cut back on popular technology companies including Hynix, Nvidia Corp. and Alphabet Inc. The fund remained largely flat even as those stocks fell.

“The current market volatility is similar to the internet-related corrections of 1998, which did not signify the end of the internet’s growth cycle,” Kwek said in an email. “Valuations in many AI-related companies have now adjusted to more reasonable levels - we are actively assessing opportunities and preparing to gradually increase exposures in the second half of the year.”

Despite the falls, it still sees value in AI-driven tech stocks. In the six months ahead, it will pick up shares in companies including Hynix, Samsung Electronics Co. and Micron Technology Inc. if prices come down, said Kwek.

CloudAlpha Capital Management’s Singularity Tech Fund’s 28% return was bolstered by semiconductor and hardware stocks that benefited from the AI infrastructure boom, one of the people familiar said. Investments are equally split between Asia and the rest of the world.

Rays Capital Partners Ltd.’s Asian Technology Absolute Return Fund jumped 42% in the first half. While it owns AI proxies, including Nvidia, Arm and Dell Technologies Inc., gains also came from Taiwanese providers of liquid cooling solutions to AI servers that are not household names, such as Asian Vital Components Co. and Auras Technology Co., said a person familiar with the fund.

Kaizen Asia-Pacific Master Fund also roared back with a 22% return in the six months, driven largely by South Korean and Japanese semiconductor and capital goods bets, said people with knowledge of the fund..

A star performer in its earlier years, it stumbled in 2023 with its first annual loss, due partly to its investment in scandal-hit Dada Nexus Ltd., the neighborhood service platform owned by JD.com Inc., one of the people said. Dada said in January it was investigating overstated revenue in some quarters.

Japan’s Rise

The rapid growth of Japan’s equity market, thanks in no small part to governance reforms, has helped drive returns at a wide variety of firms. Those themes helped fuel trades that contributed to the 24.3% surge in Panview Asian Equity Fund, said a person with knowledge of the matter and a fact sheet seen by Bloomberg News. The fund has been on an annual winning streak since it started trading in November 2019.

Japan also played a key role at Dymon Asia’s Multi-strategy Investment Fund, which delivered a 12.41% gain in the first half of the year. Its caution meant the fund wasn’t badly hit by the sudden reversals in July, according to Dymon Asia Deputy CEO Kenneth Kan. Looking ahead, some of its managers are strategically positioning for Bank of Japan rate hikes over time through rate swaps.

Share Buybacks

Chris Wang’s Yunqi Path Offshore Fund gained 13% in the first half, driven by gains from Qifu Technology Inc., Lufax Holding Ltd. and Full Truck Alliance Co. One common thread among them is Chinese companies’ new-found incentive to boost capital return to investors, said a person familiar with the fund.

Athos Capital Ltd.’s event-driven hedge fund was up 10.9% in the six months, bolstered in part by companies in Japan, China and South Korea adopting more shareholder-friendly measures to manage their cash and buy back shares. It also made money from share class arbitrage and special situations trades, said a person with knowledge of its performance.

Beyond Equities

Tribeca Asia Credit’s John Stover told investors in a note that the first half of the year produced a gross return of 12.1%. Much of the gains were driven by Indonesian property, with many of the instruments repurchased by companies at attractive levels.

He said that spreads and yields have fallen as the market normalizes in the wake of the 2022 selloff, making it harder to find outperformers — the fund recorded a 2023 gross return of 22.88%.

But Stover remained confident there will be pockets of growth for the rest of 2024 - especially if funds flow back to Asia in the wake of rate cuts in the US and Europe later this year.

Representatives of Rays, CloudAlpha, Panview, Golden Pine, L&R, Yunqi Path, Athos, Polymer and Nine Masts declined to comment. Kaizen representatives did not immediately reply to a message seeking comment.

--With assistance from Nishant Kumar.