Investment Strategies

Active Investors Using Weak Markets To Build Selective Positions - Report

Editorial Staff, 2 March 2020

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Markets have tumbled because of the outbreak of COVID-19 virus across the world, and the associated disruption to supply chains and closure of major events.

Actively managed funds are using falls in equity markets – which slumped on Friday – to build positions in Chinese tech giants such as Alibaba and Tencent, according to Copley Fund Research, the international firm tracking portfolios. 

Amidst the global stock market rout caused by coronavirus concerns, China and Hong Kong stocks are supported by historically low allocations relative to benchmark indexes in the run up to the outbreak, it said. (The report appears to have been produced before Friday's sharp global fall in equity market indices.)

The disclocation in global markets caused by the virus is prompting funds to boost exposure to some companies, it said. What have been bearish (aka underweight) positions in firms such as e-commerce firm Alibaba make these stocks well placed to gain. The comments come from  Copley Fund Research's China & HK Investor Positioning Report, which surveys 872 long-only active equity funds with combined assets of $1.3 trillion.

"The extremely low positioning in China compared with benchmark indices is likely to drive a strong rebound in China stocks, despite supply chain disruptions and other economic impacts from the virus,” Steven Holden, CEO of Copley Fund Research. “Market lows in recent weeks have provided an opportunity for investors to reduce their large underweights, particularly in Alibaba and Tencent,” Holden said. 

Relative to the MSCI Emerging Markets Index, China and Hong Kong remain the most underweight since Copley Fund Research began compiling the data in 2011, with emerging market funds holding 5.45 per cent less in the region than the recommended weighting. The underweight has increased significantly from a year ago when emerging market fund managers were about 3.73 per cent underweight, he said.

"Investors have been taking advantage to resize some of their underweight positions while prices are attractive," said Holden. "But there are still overhangs from the trade war and competing opportunities in Europe, Russia and India are pulling investors elsewhere."

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