China’s stock market is notorious for being a wild ride mastered by few — it’s fallen 30% over the past two years.At the same time, though, there’s opportunity everywhere, so how do you take advantage of it?
According to Goldman Sachs vet Shen Yi, the answer lies with science. Reuters reports that Yi just launched a $20 million quant fund. Just quant. Forget fundamentals — Yi, and a collection of other bankers with the same philosophy — believe the only way to beat the Chinese market is through complex modelling.
“Models sum up history and predict the future,” said Shen, who holds a doctorate degree in physics from Oklahoma State University. “Markets change, but human nature doesn’t.”
Since 2010, about 30 quant funds just like Shen’s have been set up in China. And while there are no official figures on the details behind those funds, Shen believes that there’s about 10 billion yuan in those funds and that in just a few year that number could explode 10 fold.
There are drawbacks though. The Chinese funds are highly regulated. For example, there are rules against intraday trading, there’s a stamp tax rate of 1 per cent of transaction value — which is brutal on high frequency trades — and there aren’t as many ways to hedge in the country since index futures and short selling were only brought into the market 2 years ago.
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