Credit: Investment in China has ticked up in recent months, with hedge fund capital invested in emerging markets shooting to a record high in the third quarter, driven by solid performance of Chinese hedge funds.
Chinese stocks offered their best performance since 2009, with the HFRI EM: China Index jumping 28.1% for the year through October, Hedge Fund Research Inc. reported. That surpassed the 15.6% climb of the HFRI Emerging Markets (Total) Index. A total of $55.2 billion in capital poured into Emerging Asia hedge funds for the period, a 13.5% increase, compared to a 10.9% increase in hedge fund capital to emerging markets.
"Chinese hedge funds have continued to demonstrate strong outperformance of regional equities through security selection and exposure adjustment, while MENA focused funds continue to navigate regional volatility associated with unpredictable political and commodity adjustments," HFR President Kenneth Heinz said in a statement. "EM hedge fund performance and growth leadership is likely to extend into 2018 as these trends continue."
A group of major hedge funds tracked by GuruFocus, which includes names such as Bill Ackman ( Trades , Portfolio ), Carl Icahn (Trades, Portfolio) and Ray Dalio (Trades, Portfolio), displayed most interest in three China-based stocks over the past six months. They were: JD.com Inc. ( JD ), New Oriental Education & Technology Group Inc. ( EDU ) and Momo Inc. ( MOMO ).
JD.com Inc. ( JD )
Five hedge funds tracked by GuruFocus bought JD.com Inc. in the past six months. Chase Coleman (Trades, Portfolio) had the most shares with a 3.45% stake and added to the position by 12.3% in the third quarter. Stanley Druckenmiller (Trades, Portfolio) made the biggest increase to his holding, with a 60.8% addition of shares. He owns 0.15% of shares outstanding.
JD.com is an ecommerce company based in China that has a $60.33 billion market cap. It competes with Chinese-listed retailers like Suning and Sun Art and U.S.-listed retailrs like Walmart ( WMT ) and Amazon ( AMZN ).
Its stock price soared 66% year to date to trade around $42.20 Thursday afternoon.
In the past 12 months, JD.com grew its revenue at a rate of 38%, free cash flow at 57.70% and book value at 47.90%. The company has also increased its gross margins each of the past five years, reaching 15.2% for 2016. Net margins have run negative for the past five years.
JD.com had $3.29 billion in cash and $2.38 billion in long-term debt on its balance sheet as of third quarter-end. The company generated $622 million in free cash flow in 2016, compared to negative $559 million in 2015.
JD.com has a P/B ratio of 7.67, which is near a one-year low. Its P/S ratio is 1.21.
New Oriental Education & Technology Group Inc. ( EDU )
Five hedge fund managers tracked by GuruFocus also purchased shares of New Oriental Education & Technology Group Inc. in the past six months. The largest new buy of the company was made by Jim Simons (Trades, Portfolio), who acquired 0.39% of shares outstanding. Lee Ainslie (Trades, Portfolio) made the biggest increase, boosting his position by 23.8% to 0.3% of shares outstanding.
The educational services company offers a range of services like helping students prepare for exams and learn language and workplace skills. Is has a $14.54 billion market cap.
In the past 12 months, the company had the following 12-month growth rates: 23.6% for revenue, 21.9% for EBITDA and 18.3% for book value. At third quarter-end, New Oriental Education & Technology Group had $839 million in cash and no long-term debt on its balance sheet. The company generated $512 million in free cash flow for its fiscal 2017 compared to $453 million for its fiscal 2016.
Shares of the company rose 119% year to date, reaching an almost 10-year high of $92.20 per share on Thursday afternoon.
The company has a P/E ratio of 49.8, P/B ratio of 8 and P/S ratio of 7.35, which is near a five-year high.
Momo Inc. ( MOMO )
Four hedge fund managers tracked by GuruFocus purchased Momo Inc. Jim Simons (Trades, Portfolio) made the biggest increase of the third quarter, multiplying his position by 967.1% to own 1.57% of shares outstanding. Sarah Ketterer (Trades, Portfolio) made the biggest new buy of the third quarter, purchasing 0.26% of shares outstanding.
Momo Inc. is a mobile social network app that lets users communicate through short-form videos and live streaming. It has a $6.29 billion market cap.
In the past 12 months, Momo Inc. grew at the following average rates: 232% for revenue, 408% for EBITDA, 185% for free cash flow and 61.6% for book value. At third quarter-end, Momo Inc. had $517 million in cash and no long-term debt on its balance sheet. The company generated $211 million in free cash flow for 2016, increased from $44 million in 2015.
Shares of the company increased 39% year to date and trade for $25.50 at close Thursday.
Momo Inc. has a P/E ratio of 17, which is near a three-year low. Its P/B ratio is 5.58. Its P/S ratio of 4.47 is near a five-year low.
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This article first appeared on GuruFocus .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
