US Hedge Funds Unload $700 Million of China ADRs, Morgan Stanley Says

US-based hedge funds are selling into the rally in Chinese stocks, according to Morgan Stanley.

(Bloomberg) — US-based hedge funds are selling into the rally in Chinese stocks, according to Morgan Stanley.

The fast-money managers have unloaded roughly $700 million in New York-listed shares of Chinese companies this month, strategists led by Gilbert Wong wrote in a Thursday report, citing the bank’s analysis. PDD Holdings Inc., Yum China Holdings Inc. and Vipshop Holdings Ltd. have been among the names sold down the most by long-only managers, the strategists said.

The Nasdaq Golden Dragon index of Chinese company American depositary receipts has surged 11% this month, spurred by vows from Beijing of further support for the nation’s struggling economy. While Monday’s 4.3% advance, the biggest since February, fueled a surge in short covering, traders were quick to add new positions over the next two days, the report said, a potential sign that US hedge funds remain skeptical policy makers will follow through with policies necessary to sustain the rebound.

Trip.com Group Ltd. saw the highest buy flows from long-only managers at $548 million, while electric vehicle manufacturers remained among the most resilient names as firms including NIO Inc. and XPeng Inc. continued to see meaningful short covering, the strategists wrote.

Volkswagen AG plans to invest $700 million in Xpeng and jointly develop electric vehicles in China, the German automaker said Wednesday. The announcement spurred a 32% rally in Xpeng’s ADRs over the past two days.

Overall trading activity in Chinese ADRs continued to decline in July, with volume down 17% compared to the same period last year, according to the report.

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