Written by Summer Chen
HONG KONG (Reuters) – Concentrated bets on Chinese e-commerce giant BDD Holdings Ltd may have cost hedge funds billions of dollars in losses as its shares tumbled following disappointing comments from its executives.
Shares of U.S.-listed BDD Inc., owner of low-priced retailer Teemo, have fallen 33% this week, and 30% in the third quarter.
In numbers
Global hedge funds held 102.8 million shares of PDD at the end of June, up from 91.7 million shares in the previous quarter, according to estimates from WhaleWisdom, a site that tracks and analyzes quarterly U.S. 13F filings.
It is not yet clear whether hedge funds have increased or decreased their investments since then, but Reuters calculations show that a 30% drop in BDD shares between the end of June and Aug. 29 would have wiped out a total value of about $4 billion from those positions.
Some of Asia’s largest hedge funds, including billionaire Zhang Lei’s HHLR Advisors, Tiern Capital and Greenwoods Asset Management, were among PDD’s major investors by market value as of June 30, according to WhaleWisdom.
Among global hedge fund giants, David Tepper’s Appaloosa Management owned 1.94 million shares of PDD at the end of the second quarter, worth more than $250 million.
Context
PDD missed market expectations for quarterly revenue on Monday. During the earnings call, the company said revenue growth would face pressure from intensifying competition and external challenges, and there were no plans to pay a dividend or buy back shares.
Why is this important?
PDD has been the first choice for many funds investing in China, as the budget product platform is one of the few companies in the country that is still growing and expanding globally amid the economic slowdown.
The unexpected downward guidance, coupled with the stocks’ slide, dampened sentiment toward already struggling Chinese stocks, sending technology and consumer goods stocks lower.
Main quote
“PDD was a busy long position for many clients of all calibers,” said Andy Maynard, global head of equities at China Renaissance Securities. “I’m sure the sell-off of over 30% was tough on all types of funds.”
“In terms of guidance, it was really bad… Overall, it will make some investors more pessimistic than ever, and will likely mean they continue to narrow their portfolios to names they trust, are transparent, and can see future growth,” he said.
(Prepared by Samar Zein; Edited by Vidya Ranganathan and Jamie Freed)