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Hedge funds that have recently flocked to Chinese stocks in hopes of recovery have done a 180. Professional traders on Tuesday recorded the largest single-day net sale of Chinese stocks, both onshore and offshore, data shows of Goldman Sachs prime brokerage. Net sales were 1.4 times the previous record, Goldman said. The record exodus came after the National Development and Reform Commission earlier this week provided few details on new stimulus measures intended to boost the world’s second-largest economy. Local officials said China would accelerate the issuance of special purpose bonds to local governments to support regional economic growth, but did not announce major new spending plans. “As the NDRC became overwhelmed, hedge funds quickly sold Chinese stocks,” Goldman strategists said in a note to clients on Wednesday. “Hedge funds not only unwound their long positions, but also added short positions to their portfolios, with long sales accounting for double the amount of short sales.” Hedge funds had just flooded into developing markets at a record pace a week earlier, as Beijing’s rare stimulus package sparked new optimism. The enthusiasm was highlighted by hedge fund manager David Tepper of Appaloosa Management, who told CNBC he was buying “everything” related to China because of the latest government support. Mainland China’s CSI 300 stock index has had a rollercoaster week after traders returned from Golden Week – largely blamed on officials’ disappointing update. The benchmark index climbed more than 10% at the open Tuesday, but later pared those gains to 6%. After a sell-off on Wednesday, the benchmark index is down 0.5% since the start of the week. “When you catch the dragon’s tail, expect a wild ride,” Mehran Nakhjavani, partner at MRB Partners, said in a note. “Some investors who bought into the idea of massive stimulus in late September were disconcerted by the lack of fiscal support that followed.” For now, investors are eagerly awaiting the Chinese Finance Minister’s press conference on Saturday for more details on the measures the government is considering to stimulate the economy.
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