China’s quant funds snap back in sign of resilience after rout
Quant funds offering so-called index enhancement strategies beat stock gauges across the market.
China's quantitative hedge funds are recovering after a steep decline during a market rout in July, with most popular strategies outperforming benchmarks, according to a report by ST. Quant funds employing index enhancement strategies surpassed stock indices, with an average return of 9.1% in the week ending Aug 7, compared to a 7.1% return on stock indexes.
Many long-only quants suffered losses of around 17% during the sell-off, driven by a global flight from shares tied to artificial intelligence. However, all seven index-enhancement strategies tracked by China Merchants Futures Co. generated alpha in the week ending Aug 14, beating their benchmarks by 1.2 percentage points. The rebound in China's 2.6 trillion yuan quant sector may continue as markets normalize, but uneven recovery exists, with the weakest players still facing a challenging climb back.
PaiPaiWang attributes the snapback to a technical rebound from oversold levels, restored liquidity, and the revival of quant factors, particularly volume-price signals that performed poorly during the rout. The CSI 1000 gauge of small-cap stocks favored by quants rose 10% in the first two weeks of August, after dropping 20% in July, while the large-cap CSI 300 rallied 2%.
Mingshi Investment Management reported a 16.6% gain in its all-market quantitative strategy in the first week of August, following a 20% slump in July. The firm attributes the recovery to its model's continuous response to quant signals, including a renewed technology exposure. Guolian Minsheng Securities Co.'s data shows Everon Quant delivering the strongest bounce in excess returns across major Chinese indexes, outperforming the CSI 300 by 1.96 percentage points in the week ended Aug 14.
Despite the overall recovery, only about 8% of long-only quant funds have fully recovered their July losses, compared to 13.5% of all hedge funds. The broader sector is still incomplete, with experts suggesting that a broader rally across smaller and mid-cap stocks, coupled with reduced correlations among momentum, liquidity, and volatility factors, will support the recovery of index-enhancement and diversified stock-selection strategies.
Written by urgent.news from Straits Times Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
