Hedge funds ride Chinese stocks to best month in 14 years

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Many Western investors see China as a slowing giant, but traders in the region have used a more optimistic take to score huge profits.

Hedge funds that focus on Chinese stocks produced their biggest monthly gains in more than 14 years in April, thanks to increased access to local markets and expectations of government economic stimulus and business reforms, both of which caused equities to surge.

The AsiaHedge Chinese Long/Short Equity Index, which tracks hedge funds that pick local stocks, gained 16.58 percent net of fees in April, the best monthly gain since a 23.77 percent rise in March 2001, when more Chinese investors were allowed to access the stock market.

The average China hedge fund is now up an astounding 23.25 percent this year through April—versus a 2.76 percent rise for the HedgeFund Intelligence composite index—and is easily the best-performing strategy in the world.

"It's a question of the glass being half empty or half full," William Ma, Hong Kong-based deputy chief investment officer of Gottex Penjing Asset Management, said in an email. "Global allocators focus more on top-down macro like GDP slowdown in China, while domestic investors and managers are more optimistic from a bottom-up perspective."

Ma and other hedge fund industry observers cite several factors for the huge gains.

Those include recently reduced interest rates by the People's Bank of China; increased market openness through the government reform of state-owned enterprises; and huge new investment flows through the Shanghai-Hong Kong Stock Connect program, which increased access for international investors to local shares and recently opened to Chinese mutual funds.