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American Hedge Funds Reduce Exposure to Companies Depending on Revenues From Communist China

Jonathan Walker
Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.
Published: September 11, 2021
Major hedge funds are selling off positions in American firms that depend on communist China for a significant portion of their revenues.
Major hedge funds are selling off positions in American firms that depend on communist China for a significant portion of their revenues. (Image: sergeitokmakov via Pixabay)

Hedge funds are slashing their exposure to U.S. companies that depend on communist China for their business. This includes companies like General Motors Co. and Las Vegas Sands Corp., according to Goldman Sachs’s prime brokerage unit.

U.S. companies with significant exposure to the China market were dumped by fund managers as they cut down on such net holdings by almost 26 percent last month. Companies that counted on the communist regime for supplies witnessed their ownership falling 17 percent towards last year’s bottom range. 

Hedge funds reducing their exposure to China-exposed U.S. firms are bringing deeper issues to the forefront. Relying on communist China exposes American businesses to the possibility of more shipping ports being shut down or the nation’s economy faltering in the near future. The actions of these hedge fund companies could also be attributed to a “knee-jerk” reaction to the recent carnage at the stock market as U.S.-listed Chinese stocks hit record lows.

Most Wall Street experts do not expect the CCP’s recent harsh policies on Chinese companies to translate into a global market threat. Beijing has been cracking down on Chinese tech firms and other businesses to exert greater control over them. This has spooked investors. Key strategists at Goldman and JPMorgan Chase have advised investors to maintain calm. They’ve termed the situation in communist China to be nothing more than a local problem. 

The beneficiary of Beijing’s crackdown seems to be American tech companies. In the past three months, American internet and software firms have beaten every other industry in the S&P 500.  

“The U.S. is still a law-based society, and under the law, who has more capital, who has more resources usually wins in that kind of legal system. In that sense, it’s beneficial for the large technology companies and that does give them a premium. In China, those technology companies have no control over their own fate in terms of the regulatory or the legal environment,” Zhiwei Ren told Bloomberg. Ren is a portfolio manager at Penn Mutual Asset Management.

Chris Zaccarelli is the chief investment officer at Independent Advisor Alliance. He says that American companies operating in communist China are facing a considerable risk of reduced growth potential and more regulatory scrutiny. To mitigate the risks, investors should cut down exposure to such firms.

Hedge funds have also scaled down their positions in U.S.-listed Chinese stocks. The 13F filings by hedge funds for the second quarter show that the unloading of such stocks has erased over $750 billion in the market value of these companies. Tiger Global cut down its stake in, Alibaba, and TAL Education group. Soros Fund Management exited Tencent Music Entertainment Group and Baidu. Appaloosa reduced its stake in Alibaba while exiting Baidu.