YEREVAN (CoinChapter.com) — Numerous prominent hedge funds from the US and Europe have engaged in the Chinese debt market, particularly amid the real estate downturn. This involvement proved profitable for some, enticing additional investors to partake in what appeared to be a lucrative opportunity. However, looking back, investing in Bitcoin would have been a more advantageous choice for them than Chinese bonds.
First Came Profits From China
The financial struggles of China Evergrande Group, for example, presented a perceived opportunity for these hedge funds to profit through distressed debt trade.
US-based Sigma and Bridgewater are notable among these major fund operators that won the Chinese bond bet.
Despite the overall economic downturn in China, driven by the real estate market collapse, these firms achieved significant gains. For instance, Bridgewater’s flagship China fund yielded a return of over 10% last year. Meanwhile, Two Sigma’s major Chinese quant trading funds garnered a return of over 16%.
According to a recent report by The Daily Upside, this performance was notably better than the average 3% return of locally owned multi-strategy hedge funds in China.
Meanwhile, hedge funds investing in Bitcoin faced different risk-reward dynamics than those in the Chinese debt market.
Then, Chinese Bonds Became Unprofitable
Despite the early success of Sigma and Bridgewater, US and European hedge funds have been grappling with the complexities of distressed debt trading in China’s market.
Evergrande, one of the largest property developers in China, is in deep trouble. It has already defaulted on $19 billion worth of offshore bonds. Moreover, the firm has a debt level of $330 billion with an asset size of only $240 billion.
Last month, a court in Hong Kong ordered Evergrande to liquidate, potentially hitting the last nail in the firm’s coffin. As Bloomberg reports, its bonds trade in the secondary markets at just 1 cent on the dollar.
Even then, debtors will fight a tough legal battle for years before recovering their pennies to the dollar they invested in the Chinese debt market.
However, Evergrande is not the only industry giant on the verge of collapse. Country Garden, another property titan, also teeters on a similar edge.
In October 2023, it defaulted on debts, forcing it to sell a small stake in a Dalian Wanda unit back to the group for $428 million. Despite this, its future remains uncertain.
Moreover, the ruling Communist Party heavily influences China’s unique economic system. By now, it is evident that the Xi Jinping government will not bail out the firms. Hedge fund managers who have their money stuck in China will not find any friendly face in Beijing keen on returning them anything soon.
Bitcoin Could Have Been Better Bet Versus Chinese Debt
Troubles in China are far from over. Hedge fund manager Kyle Bass, the founder of Hayman Capital, has expressed concerns about the Chinese economy’s overreliance on the real estate sector. He has further compared the real estate crisis in China to the 2008 US financial crisis, but potentially more severe.
“This is just like the U.S. financial crisis on steroids,”
Bass said in an interview with CNBC.
However, it is not only hedge funds that are in trouble. The real estate sector in China accounts for approximately a quarter of the country’s GDP. In a more worrying figure, 70% of household wealth lies in the sector. China is a massive economic mess, and its ripples will be felt worldwide.
China’s real estate began tumbling faster when, in 2020, Beijing moved to restrict new borrowing. According to the Financial Times, as many as 60 property issuers have defaulted on their debt since then.
In contrast, Bitcoin investors around the same time have seen comparatively decent profits.
Between early January 2020 and early November 2021, when Bitcoin reached an all-time high of around $69,000, BTC surged nearly 1,000%. Since then, it has dropped 35% at trades at $45,000 while writing.
However, even with today’s price, BTC trades at over 550% more than its value in early 2020.
While the housing crisis in China provided an opportunity for some, it is proving to be a wrong investment. Instead, Bitcoin would have been a better bet for EU and US investors.
