HONG KONG Global fund managers have been selling U.S. listed Chinese stocks and the index tracking them is sagging badly, which suggests progress toward resolving disputes over their accounts has not been enough to shake investors' fears about the sector's outlook.
As of last Friday, U.S. long-only funds or funds that do not short stocks and hedge fund managers were net sellers of such stocks through the third quarter, according to data from Morgan Stanley strategists. It gave no dollar figure for the sell-off, though it has weighed on prices.
The Nasdaq Golden Dragon Index, which tracks them, has fallen more than 14 per cent since a long dispute over compliance with U.S. audit requirements, underperforming the S&P 500 and the Hang Seng.
Chinese stocks are traded in the United States as American Depositary Receipts ADRs -- U.S. securities that represent foreign shares of a foreign company.
As interest rates rise, investors hope that the progress made may have improved sentiment towards Chinese ADRs, which include out-of- favour online giants Alibaba and JD.com.
We had had three cycles of optimism in 2022. Andy Maynard, global head of equities at China Renaissance Securities, said that every time there's another wind coming in that nobody could have seen.
First was the war, then we had Pelosi's trip to Taiwan, and now we have inflation, he said, referring to fighting in Ukraine and an August trip by U.S. House Speaker Nancy Pelosi that ratcheted up Sino-U. Taiwan and S. have strait tensions.
The US regulators disputed China's refusal to give them full access to company accountants and audit papers, which had threatened their listings. A deal struck in August has paved the way for audits to begin this month.
After an initial warm response, investor attention has drifted away. The trading volume in Alibaba is in decline and there seems to be little price support across the sector, mainly due to short covering.
According to Morgan Stanley's strategists, one-fifth of the short bets were covered by hedge funds during the quarter. They said long-only managers are waiting for some better news from China before adding exposure.
The Hang Seng Index dropped more than 25 per cent and the Shanghai Shenzhen CSI 300 Index fell more than 20 per cent, as both Alibaba and Tencent ADR are down more than 30 per cent this year.