Hedge Funds Dump Chinese Stocks

Back on January 24, we told premium subs to our private news feed that Chinese stocks had plunged too far, too fast, and that the time to buy China (via FXE) had arrived.

In retrospect, we timed that call perfectly as it was the bottom-tick for Chinese equities.

Several months later, well after our readers had already put the trade on, the always delayed Wall Street lemming brigade turned very bullish on China, however with far more risk and far less upside.

Then, one month ago when we concluded that Chinese stocks had moved too far, too fast, on May 6 we told subs that the time to close the FIX trade had come as we, too, unwound out long China position at a 25% profit in just over three months.

It appears that call too was almost perfect, because after extending fractionally beyond our sell level, Chinese stocks have since slumped and it now appears that the sell brigade has also arrived (one month after our reco; incidentally readers who wish to become premium subscribers can do so here).

As Goldman's John Flood writes in his daily Chart of the Day, what stood out to him from the latest Goldman weekly Prime Brokerage data is that "Hedge funds unloaded Chinese stocks across all channels last week and at the fastest pace since last summer" and after net buying Chinese equities in 7 of the previous 8 weeks (modest in magnitude), HFs reversed course and have picked up the pace of selling again.

In other words, they are doing precisely what we said to do... with the requisite 1 month delay.As shown in the Goldman PB chart below, Chinese equities collectively were net sold for a second consecutive week on the Prime book – last week’s notional net selling was the largest since Aug ‘23.