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Despite the World's Most Extreme Market Mania, this Hedge Fund made 2,100%


09/08/2016


Despite the World's Most Extreme Market Mania, this Hedge Fund made 2,100%
Few have managed to deliver on turning volatility into opportunity as well as Wang Bing even though plenty of professional investors like to tout their talent for the same.
 
The most fevered speculative mania of 2016 to produce the kind of returns that only volatile markets can provide have been navigated by the 37-year-old trader of Chinese commodity futures with deft timing and the magnifying power of leverage. Extending an advance since its March 2015 inception to 2,100 percent, Wang says his Guli Trend Aggressive Strategy fund has climbed about 750 percent this year.
 
At a time when hedge funds around the world are getting battered by weak performance and client outflows, these gains are even more remarkable even as they would stand out in any market environment. This former iron-ore importer says his trades are dictated by old-fashioned analysis of supply and demand even as many of Wang’s peers have embraced computer-driven strategies in an attempt to gain an edge. However it remains to be seen whether that makes him a long-term star of China’s futures markets or a short-lived outlier.
 
“There are always more opportunities to make big profits, or big losses if you are wrong, amid wide price swings,” said Wang. Shenzhen PaiPaiWang Investment and Management Co., a compiler of domestic hedge fund returns, tracked Wang’s funds and said they climbed the most this year among Chinese peers.
 
The present turbulence has rarely been as extreme as it is now n the Chinese commodities markets. Daily turnover on the nation’s futures exchanges more than tripled to $261 billion over a two-month span earlier this year. That figure is more than the gross domestic product of Ireland. The boom, which peaked in April, saw the prices of at least five commodities surging more than 50 percent.
 
Ever since, volatility has rocked the market. While professional traders have struggled to gauge demand amid uneven economic data in China and the U.S., official efforts to restrict speculation left some mom-and-pop investors scrambling to unwind positions.
 
How manic trading has been is illustrated by this year’s swings in rebar. Futures on the construction material dropped 28 percent over the months following early December to mid-April when they surged by 66 percent. Before sliding about 10 percent through Wednesday, they had rallied 35 percent until mid-August.
 
He’s managed to time the big swings almost perfectly, Wang says. Betting that production cuts would spark a rally and as prices bottomed out around 1,600 yuan a metric ton, he had reversed a short position in rebar at the end of last year. He closed out the positions on April 22 just as prices were peaking after he had added to his bullish wager in early April as property and infrastructure investment picked up.
 
The embedded leverage of futures contracts made possible his outsized returns. Margin, which is just a fraction of the value of the underlying assets, is typically required for their purchase or sale.  That means that for holders of the derivatives, even small price changes can lead to big profits or losses.
 
Encouraged by signs that President Xi Jinping’s government would take measures to tackle oversupply, 
Wang had recently been betting on higher commodity prices. But responding to local speculation that producers of coke and coking coal will be allowed to ramp up production, he closed out the last of those positions on Wednesday. When prices fall to around 2,300 yuan a metric ton, he’s looking to re-open bullish bets on rebar.
 
(Source:www.bloomberg.com) 


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