A TOP Chinese macro hedge fund said it slashed stock positions last month as the nation’s market rout deepened, taking losses after acknowledging mistakes betting on a rapid economic recovery.

Shanghai Banxia Investment Management Center “significantly reduced” its equity assets in the middle of January to cut losses, only keeping exposure to safer high-dividend stocks and bigger companies in the CSI 300 Index, according to its January letter to investors.

Banxia recognised its mistakes two weeks into the year, realising it “must lose an arm for survival”, the firm, led by founder Li Bei, said in the Feb 4 letter seen by Bloomberg, using a Chinese proverb. That allowed it to “luckily dodge the more fierce declines of the most recent week”.

Li declined to comment.

Chinese shares sank to a five-year low on Friday (Feb 2), prompting regulators to tighten trading restrictions on domestic institutional investors as well as some offshore units in a further bid to stem the prolonged rout. Stocks rallied on Tuesday after an entity of China’s sovereign wealth fund said it will continue to increase holdings of exchange-traded funds.

Li, who manages more than 10 billion yuan (S$1.9 billion), publicly accepted the blame for wrong-way bets last month, after registering a maximum drawdown of 25 per cent from a peak in the middle of last year, the worst of her career.

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Other macro hedge funds have been caught out by China’s stock market slump. Veteran investor Chua Soon Hock decided to shut his Asia Genesis Macro Fund last month after wrong-way bets on Chinese and Japanese stocks inflicted “unprecedented” losses.

While Li turned optimistic from the third quarter after seeing policy shifts, both monetary and fiscal policies “somehow oscillated” in the past month, and the implementation of measures supporting the property market fell “significantly below expectations”, according to the letter. 

The Banxia Macro Fund fell 7.8 per cent in January, after a 14.7 per cent decline last year, according to the letter. Last year, it was ranked the best performer among multi-asset funds running at least 10 billion yuan for the previous five years, according to Shenzhen PaiPaiWang Investment Management. BLOOMBERG