DeepSeek effect? How China’s quant funds thrive amid tight regulatory scrutiny

China's quantitative investing sector has seen 18 funds managing over 10 billion yuan (US$1.5 billion) in assets each so far this year, despite tight regulatory scrutiny. This industry is among 159 Chinese hedge funds overseeing more than 10 billion yuan in assets each, capitalizing on technology-driven momentum in the world's second-largest stock market. Notable newcomers to the club include AXQ Capital, Hopeseek Fund, and Huanian Fund.

Christopher Beddor, deputy China research director at Gavekal Dragonomics, notes that many quant funds are performing exceptionally well. He explains that onshore equity markets are less sophisticated than global markets, allowing quant funds to generate solid returns through systematic trading strategies originally developed abroad.

Chinese investors are increasingly flocking to financial assets due to low deposit rates and weak real estate performance, according to Gary Ng, economist at Natixis. The growing interest in hedge funds is attributed to their attractive returns. Chinese brokerages like Sinolink Securities and Shenwan Hongyuan Securities have begun promoting quant trading services through their mobile apps, enabling eligible investors to access China's quant trading platforms.

While quant funds are achieving competitive returns, the regulatory environment in China remains challenging. Beddor points out that Chinese financial regulators are deeply invested in market outcomes and can intervene if they perceive a risk to market stability. However, he highlights DeepSeek, a quant fund backed by High-Flyer, as a potential turning point in how policymakers view quant funds.

DeepSeek was created by a fund rather than a traditional tech company, marking the first time policymakers recognized the fund industry's potential for technological advancement.

As of August end, Chinese private securities investment funds, including quant funds, managed over 9 trillion yuan in assets, according to the Asset Management Association of China.