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Chinese stocks continued to tumble this week on new data showing the slowdown from COVID-19 was worse than expected in July. Shares of Chinese companies, mostly in tech, began plunging in mid-July as local regulators threatened a crackdown on US-listed Chinese companies.
Some hedge funds who went into the second quarter with large positions in Chinese companies were left holding the bag while others sold off their stakes at a prescient moment. New regulatory filings revealing positions as of the end of the second quarter show how intertwined some firms have become with massive Chinese companies. It's unclear if the funds listed held these positions through the sell-off, or still hold them today.
Insider rounded up possible winners and losers of the sell-off, with firms like D1 Capital and Coatue doubling down on their bets before the market took a dive while China bulls like Tiger Global Management and Sculptor Capital trimmed their positions early and avoided serious damage.
Doubling down and buying in
D1 Capital, from billionaire Dan Sundheim, has already had to battle masses of retail traders piling into one of his short targets earlier this year. Now, he is dealing with the Chinese government eyeing one of his biggest positions as of the end of the second quarter: ecommerce giant JD.com. D1 increased its position by 25%, or to a stake worth $1.24 billion, compared to the first quarter of the year.
The company's stock price has fallen more than 16% since the start of the third quarter, as of the end of trading Monday.
The firm, which has been one of the top-performing funds since launching in 2018, had a strong July though, a source familiar tells Insider. D1 was up 5.6% last month, bringing its year-to-date performance to 9.7%.
Big-time 2020 winners Coatue and Rokos Capital have been unable so far to match the returns they produced last year, and the dip in Chinese stocks has not helped. Rokos, the $15 billion London-based macro manager, added at least three Chinese companies to its public equities portfolio — JD.com, Alibaba, and DiDi Global — in the second quarter, investing a total of $140 million.
Alibaba is down nearly 20% in the third quarter, while DiDi Global has fallen by more than 40% since its IPO in June.
Coatue meanwhile piled into JD.com to the tune of some 870,000 shares. At the end of the second quarter, those shares were worth $69.5 million. Currently, that many shares are worth just over $58 million.
Other firms that bought into Chinese companies prior to July include:
- Karl Kroeker and Mike Rockefeller's Woodline Capital, which doubled its stake in Chinese internet company Baidu. The company has fallen just under 30% in the third quarter.
- Billionaire Jamie Dinan's York Capital, which invested roughly $12 million in agriculture tech platform Pinduoduo last quarter. The company is down more than 35% this quarter.
- The family office of billionaire George Soros, which made a roughly $40 million investment into DiDi Global.
- Dmitry Balyasny's eponymous firm, which runs its billions in assets across dozens of teams. The firm increased its bet on JD.com and bought into newly public company DiDi Global, while it decreased its small stakes in Alibaba and Tencent.
Trimming down
Chase Coleman's $65 billion Tiger Global is well-known for its big bets in China, and Bloomberg reported in July that it was still bullish on the country's prospects despite regulatory fears. But the manager trimmed its positions preemptively in at least one Chinese stock, shedding about 300,000 shares in Alibaba. The firm did however hold onto its stake in Pinduoduo, filings show.
The firm lost less than 1% last month, avoiding serious pain.
Sculptor Capital Management, which went into the first quarter with sizable bets on JD.com and Alibaba, managed to trim its positions in both before the stocks took a nosedive. During the second quarter, it sold off nearly 300,000 shares of JD.com, bringing its stake down to $197 million from $233 million at the end of the first quarter, and shed 200,000 shares of its Alibaba holdings to boot.
The firm's flagship fund dropped 0.2% in July, but is up over 5% for the year, filings show.
Gabe Plotkin's Melvin Capital Management avoided more pain this quarter after getting burned in the now-infamous GameStop short squeeze, during which it was down 53% in the month of January alone. The New York-based hedge fund sold out of its entire position in Alibaba this quarter after ending the first quarter with 900,000 shares.
Other firms that sold off shares in Chinese companies prior to July include:
- Billionaire David Tepper's Appaloosa Capital Management, which cut its stake in Alibaba roughly in half, though it still has more than 1.1 million shares, worth some $260 million.
- Macro hedge fund Athanor Capital, founded by D.E. Shaw alum Parvinder Thiara, ditched its entire stake of 118,000 shares in JD.com in the second quarter.
- David Fiszel's Honeycomb Asset Management, backed by Dan Loeb and Steve Cohen, dumped its hefty stake in Alibaba, which used to comprise 6% of its public equities portfolio.
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