By Sharan Kaur Phillora
US and European hedge funds that ventured into the Chinese debt market, particularly during its real estate downturn, found some success. Firms like the US-based Sigma and Bridgewater capitalized on the distressed debt opportunities presented by companies like China Evergrande Group, yielding impressive returns. Bridgewater’s flagship China fund, for example, reported a return of over 10% last year, with Two Sigma’s Chinese quant trading funds seeing gains of over 16%.
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This performance stood out, especially when compared to the average 3% return from locally owned multi-strategy hedge funds in China, as reported by The Daily Upside. However, the volatile nature of China’s real estate market, exacerbated by the financial turmoil of giants like Evergrande and Country Garden, presented a complex landscape for distressed debt trading.
Evergrande’s default on $19 billion worth of offshore bonds and its staggering $330 billion debt against a $240 billion asset portfolio have cast a shadow over the firm’s future, with a Hong Kong court recently ordering its liquidation. The situation with Country Garden is no less dire, as it defaulted on its debts in October 2023, adding to the sector’s instability.
The overarching influence of the Communist Party and the Chinese government’s reluctance to bail out these firms have further complicated the scenario for foreign investors, leaving them with little hope of recovering their investments anytime soon. Kyle Bass, the founder of Hayman Capital, likened China’s real estate crisis to the 2008 US financial crisis but on a potentially more devastating scale.
In contrast, Bitcoin emerged as a more lucrative bet during the same period. Between early January 2020 and November 2021, Bitcoin’s value surged nearly 1,000%, reaching an all-time high of around $69,000. Despite a subsequent 35% drop, Bitcoin’s value remains over 550% higher than in early 2020, significantly outperforming investments in the troubled Chinese real estate sector.
This stark contrast highlights the unpredictable nature of global markets and the potential for digital currencies like Bitcoin to offer more stable and profitable investment opportunities than traditional assets, especially in turbulent economic climates.
About the author
Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.
