As China’s markets are consumed by panic and paranoia, foreign investment funds are in a scramble to switch their strategies and generate some upside from the chaos, or at least mitigate some of their loses.
According to Reuters, there have been range of responses to the implosion. Here are a few of the strategies funds are adopting to survive the rout:
Looking to Hong kong. Those who still remain bullish on China’s long terms prospects are now looking for more opportunities in the territory where valuations are lower. Another main attraction is that the market is better regulated and less subject to whims of Beijing officials than Shanghai and Shenzhen.
Shorting Asian currencies. While the bearish sentiment on Asian currencies has eased recently, those that still see the decline in the yuan, and fall in national exports, as a precursor to more economic pain down the line are betting against the currencies of China’s Asian trading partners.
Shorting banks with heavy China exposure. Many of the same pessimists going short on Asian currencies are also banking on the decline of those with massive China exposure, particularly UL-headquartered banks like HSBC Holdings, and Standard Chartered.
Buying US mortgage-backed bonds. Some are investing in this area in the expectation that the wealthy Chinese looking for a safe haven will pull capital out of China and pour it into US real estate.
…or just staying focused on China. Instead of fleeing the mainland completely some are just becoming more targeted. Fidelity Investments, for example, is seeking value in specific high-growth business, particularly in the consumer space, that were undervalued even before the meltdown.
Photo: Lwp Kommunikáció, Bear Grylls Ventures