Top hedge fund says China should have waited on stock crash rule

[SINGAPORE] APS Asset Management Pte, whose long-short China hedge fund returned 42 per cent last year to beat most peers, said the nation's authorities should have waited before suspending the circuit-breaker rules because retail investors will eventually learn to deal with them.

Chinese authorities don't need to tinker with the circuit- breaker system, APS founder and chief investment officer Wong Kok Hoi said in an e-mailed response to questions. The nation's economic fundamentals haven't deteriorated markedly in the past week, Wong said. "It might not have achieved the intended desired results thus far, but retail investors will soon get used to it, and when they do irrational investor behavior would disappear," MR Wong said, referring to rules that suspend stock trading in China if losses exceed a certain threshold.

The CSI 300 Index plunged as much as 7.2 per cent on Thursday, triggering an automatic shutdown for a second time this week and prompting the China Securities Regulatory Commission to suspend the rule that came into effect on Jan 4. The flip-flop in the circuit-breaker rule adds to the sentiment among global investors that authorities are ill-prepared as as they try to stabilize markets and shore up the economy.

The breakers, which kick in to halt exchanges for 15 minutes after a 5 per cent drop in the benchmark and for the rest of the day after a 7 per cent retreat, have been criticized by analysts for deepening losses as investors scramble to exit positions before they're blocked from selling.

Wong is holding onto his view that the CSI may reach 7,000 within the next five years, up from Thursday's close of 3,294.38. APS "started buying a little" on Thursday, after staying out of the market on Monday, when the first shutdown occurred, he said.

APS's US$97 million Greater China Long/Short Fund rose 42 per cent in 2015, the Singapore-based money manager said in an e- mail. That compares with a 9.4 percent gain in the Shanghai Composite Index. The fund's 40 per cent return last year until the end of November makes it the second-best performer so far among long-short equity vehicles investing in the country, according to Singapore-based data provider Eurekahedge Pte, which hasn't yet compiled data for the full year.

The firm's APS China A Share Fund, which has US$2.3 billion of assets including related strategies, returned 23 per cent last year. The APS Asia-Pacific Long/Short Fund, with US$341 million of assets, rose 30 per cent.

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