(Bloomberg) -- A rally in Chinese stocks tied to excitement over DeepSeek and Unitree Robotics lifted returns of several hedge and long-only funds last month.
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DeepSeek’s unveiling of a lower-cost, open-source artificial intelligence model and Unitree’s showcase of its robotics technology captured investors’ imagination. The MSCI China Index surged almost 12% in February and has extended gains this month by 3%, led by stocks expected to benefit from the wider adoption of the technologies.
“Chinese equities may see a re-rating this year,” said Zheng Fang, founder of Hong Kong-based Keywise Capital Management Ltd. “DeepSeek and Unitree have prompted a re-evaluation of China’s technology development.”
Returns and strategies of Keywise and four other firms that benefited from the rebound are listed below.
Triata
Triata Capital Ltd.’s China hedge fund returned 39% during the month, helped by bullish bets on AI software and data center stocks, said a person with knowledge of the matter.
Chief Investment Officer Sean Ho started his career at global quant trading firm Susquehanna International Group, and built the initial alternative data system at Hong Kong-based asset manager Tybourne Capital Management before starting his own firm.
Using alternative data such as company hiring activities, Triata started buying American depositary receipts of data center operator GDS Holdings Ltd. in the first quarter of 2024 when they were trading between $5 and $6, said a person with knowledge of the matter, who asked not to be identified discussing private information. The firm declined to comment.
The sale of a minority stake last year valued GDS’s international business at around $3.86 per ADR, implying the market hadn’t taken into account much of the potential extra demand from the mainland Chinese AI software and infrastructure industries, the person said. GDS surged above $40 in February.
Triata, with more than $1 billion in assets, holds AI software companies including those involved in cloud computing and turning text into short videos, said the person.
Viridian
Viridian Asset Management made an estimated 6% in its best month since it started trading in August, buying shares in follow-on offerings of Chinese technology companies raising capital to finance expansion, according to CIO Pascal Guttieres.
In February, Viridian participated in share offerings of Hong Kong-listed RoboSense Technology Co., drug discovery firm XtalPi Holdings Ltd., vehicle chipmaker Black Sesame International Holding Ltd. and AI stock Beijing Fourth Paradigm Technology Co.
These offerings are usually priced at discounts to prevailing market values, providing opportunities for equity capital markets funds like Viridian to make money when shares trade higher.
“There is a market now for companies in China that want to raise money, which we hadn’t had since 2021,” said Guttieres.
His firm oversees $130 million, and has signed a deal to start managing up to $200 million for a US investor from later this month, putting it on course to reach $400 million around its one-year anniversary, he said.
Aspoon
Aspoon Capital Ltd., which already had investments in Chinese AI-related stocks last year, saw its hedge fund gain 4.8% for the month, a person familiar with the matter said. It posted a 58% return for 2024, according to a December newsletter.
The firm declared a “China ChatGPT moment,” noting the resemblance between Chinese companies’ embrace of AI and mobile internet adoption 10 years ago, it wrote in its December and January newsletters.
“We think this rally is more sustainable and unlikely to fade as dramatically as last October,” the Hong Kong-based firm led by Ryan Yin, a Tiger Pacific Capital alumnus, wrote in the January letter. The MSCI China Index soared 23% in September, only to drop in the next two months as investors anticipating bold economic stimulus were disappointed.
The company declined to comment via email.
TikTok parent ByteDance Ltd. and Alibaba Group Holding Ltd. are set to debut new versions of their own large-language models that are at least as competitive as DeepSeek’s, Aspoon said in the letter. While DeepSeek won’t be able to monetize all the traffic and attention it has received, the two giants have abundant resources to do so, kicking off a fresh AI expenditure and infrastructure cycle like in the US two years ago, it added. Alibaba has soared more than 70% in Hong Kong this year.
Red Gate
The long-only Red Gate China Growth Fund finished the month up 8%, according to data compiled by Bloomberg. Returns were driven mainly by advanced manufacturing and information technology stocks, Red Gate Asset Management Co. told Bloomberg.
Demand for robots will surpass that of electric vehicles and mobile phones combined, potentially reaching trillions of dollars, Red Gate’s research team said in an email. Chinese and international robot makers will gradually start mass production this year. The team envisions an investment strategy revolving around robotics parts and components makers. Suppliers that can make large quantities at low prices will win out.
Investor excitement about humanoid robotics stocks may abate a bit in the coming quarters, as they realize the market values of related companies have run ahead of actual application and order sizes, the research team said. In the early days, the focus should be on identifying future winners and the entrepreneurs and technology behind them, instead of valuation.
In the AI space, Tencent Holdings Ltd.’s WeChat app is conducting tests to integrate DeepSeek’s model into its search engine. Red Gate’s analysis shows it can be extended to e-commerce and lifestyle services functions.
Alibaba recently announced plans to spend more on AI over the next three years than it did in the past decade, a move that “showcases a shift in management’s mindset,” the team wrote. It “indicates a cohort of private enterprises transitioning from an economic winter to actively engaging in business.”
Red Gate counts Norges Bank Investment Management as a client, according to information posted on the $1.8 trillion Norwegian sovereign wealth fund’s website.
Keywise
Keywise Penguin Development Fund was up an estimated 5.9% in February, with most of that coming from Chinese tech companies.
Keywise, which oversees about $2.5 billion, added to existing holdings of Hong Kong-listed shares of Alibaba, China’s leading cloud services provider, and Tencent. It also bought more shares of Trip.com Group Ltd., which can use AI to enhance travel planning and customer services, Zheng said.
Xiaomi Corp. and BYD Co. are also well-positioned for AI-driven transformation, according to Keywise.
Zheng was secretary to Rong Yiren, founder of Chinese conglomerate Citic Group who later became a vice president of the republic. Zheng went on to analyze investments at the Rockefeller family trust, help manage emerging markets funds at JPMorgan Asset Management, and co-found a New York-based emerging markets fund firm before setting up Keywise in 2006.
About a decade ago, Keywise made the shift from a China-focused fund manager to one centered on mega trends such as new energy, electric vehicles, AI and robotics. Like Red Gate and Triata, it counts Norges as a client.
Most of Keywise’s investments are in US and Chinese stocks. Its regular commentaries to clients and potential investors were met with silence in the past few years, as appetite for Chinese stocks plunged, Zheng said. That changed with DeepSeek’s AI breakthrough. More than five potential clients requested meetings, among them endowment funds from the US, the Middle East and Europe, after Keywise’s latest letter, Zheng said.
(Updates with MSCI China Index performance and shows that China Tower had a reverse stock split in the chart.)
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