Asia’s stockpickers are having a hard time in a great year for large-scale hedge funds.

Asia’s hedge funds are about to have their worst year in a decade. The volatility in China has caught long-short stockpickers off guard, while macro strategy funds that take advantage of big changes in interest rates around the world are doing well.

China is relaxing its strict COVID-19 movement and testing rules, but the unpredictable effects of Beijing’s efforts to reduce economic inequality and President Xi Jinping’s consolidation of power are hurting the performance of high-flying managers with long China positions.

The Asian market as a whole was weak. As of the end of November, the MSCI China index was down about 27% for the year, and the Asia ex-Japan index was down almost 20%.

Related: China’s reopening will help Asia’s stock markets recover from their lowest levels in three years.

Up until the end of November, Eurekahedge data showed that, on average, Asian hedge funds did better than the indexes. They lost 9.1% less than the indexes.

If the current trend keeps up, it would be the worst year since 2008. By strategy, Asia equity long-short funds lost 12% and Greater China long-short funds lost 14%, but Asia macro funds rose 12% and Asia multi-strategy funds rose 1%.

The disclaimer says that past performance doesn’t mean that future returns will be the same. This year has shown very clearly how hard it is to choose stocks, and the factors that drove allocation decisions this year will still be in play in 2023.

Patrick Ghali, managing partner of hedge fund advisory firm Sussex Partners, said, “The problem is that the market hasn’t put much value on fundamentals so far.”

“No one can say when the market will again pay attention to fundamentals. Until then, it seems like traders might be a better choice than managers who depend on markets trading based on fundamentals.

GRAVITY BITES

Stellar performers like electric vehicles, e-commerce, and other internet companies have lost a lot of money because of rising global interest rates, increased regulatory scrutiny, and uncertainty about how capitalism fits with China’s economic goals.

Aspex Management (HK) Ltd. had gains of 54%, 96%, and 30% in the first three years after it opened in 2019. However, its $7.4 billion equity long-short fund lost 9.8% in the 11 months leading up to November, according to a document reviewed by Reuters and two people with knowledge of the situation.

The long book lost about 40%, with Alibaba (NYSE:BABA) and Sea, two online stores that have been hit hard by the market, being among its top holdings. The fund, which is run by Hermes Li, who used to work at the U.S. hedge fund Och-Ziff, didn’t want to say anything.

Singapore’s FengHe Group was started by John Wu, the first chief technology officer of Alibaba Group. According to a document that Reuters looked at, the FengHe Asia Fund lost 5% in the 11 months leading up to November, after making 27% in 2022.

Feng He didn’t answer Reuters’ question.

A document and a person who knows about the results say that Zeal Asset Management’s $148 million long-biased fund is down 31% as of December 2.

Zeal said that the firm has “a much more positive outlook” for the China stock market in 2023 because of policies that make it easier to do business in COVID-19 and real estate, low inflation pressure in China, and the historically low valuation of the market.

EXITING TECH

Others were helped by going on the defensive with China or at least getting out of the hard-hit technology sector.

“The days of buying concept stocks or meme stocks are over,” said Wong Kok Hoi, chief investment officer at Singapore-based APS Asset Management, which manages $2.4 billion in assets.

As of November, APS’s offshore All China Long Short Fund was down 17%, while its onshore China Long Only Fund was up 8%. Wong said he was careful and didn’t own any stocks in internet platforms or e-commerce.

People who know about the results say that Hong Kong-based long-short equity firm Tairen Capital has done even better, with a 15% return so far this year. This was mostly due to betting against tech stocks.

One of the sources said that it now has almost $6 billion in assets under management, up from $5 billion in March 2022. Tairen did not respond to a request for comment.

As tension between the U.S. and China and rising interest rates shook up the financial markets, big-picture macro funds, which trade on economic and political changes, also did well.

Related: Asia’s stock market falls because the Fed is sending “hawkish” signals and the central bank is being careful.

The flagship macro fund of Singapore-based Asia Genesis Asset Management rose 15% in the first 11 months, mostly because of short positions on U.S. and Japanese stocks, the company said.

Long positions in U.S. government debt and the Singapore dollar also helped in November, when a sudden drop in the value of the U.S. dollar caught many macromanagers off guard.

“Our quick and active trading strategy has worked out well,” said Soon Hock Chua, who is in charge of investments. He thinks that the next year will be just as unstable, but he’s happy about that.

“Markets in a swinging range will be hard for many, but good for active managers like us.”