An Asian hedge fund is shorting some Chinese and Japanese automaker stocks on bets they will lose out to South Korean rivals in the global electric-vehicle race.
“As the world develops into an increased penetration of EV, I think the Japanese automakers will really suffer,” Jae Lee, chief executive officer at Timefolio Asset Management SG Pvt, said in an interview. “It looks like the Koreans will outperform Japanese automakers in the longer term in the EV space,” said Lee, whose fund holds shares of Hyundai Motor Co. and Kia Corp.
The Singapore-based fund, which manages $3 billion in assets along with its Korean parent Timefolio Asset Management Co., is shorting Japan’s Honda Motor Co. and Nissan Motor Co. It also holds small short positions in China’s Nio Inc. and Xpeng Inc. and sees potential for more bearish bets on growing competitive threats after big gains in the stocks.
On Chinese equities overall, “the fund has sold every rally this year” and is “not ready to buy into China in any meaningful way yet as we are still unconvinced that policymakers can revive a faltering economy,” Lee said.
Timefolio Asset Management SG notched a 12% gain this year through July, Lee said. That’s better than the 2.7% gain in the Eurekahedge Asian Hedge Fund Index. The first half of this year has been tough for equity long-short and market neutral hedge funds amid relentless rallies and short squeezes.
Chinese EV manufacturers have seen their stocks surge on strong domestic sales, even as Tesla Inc. has seen a slump in China deliveries amid weak demand. They’ve also gained increasing international attention, with Xpeng recently inking a tie-up with Volkswagen AG.
Lee favors Korean makers, saying they are gaining market share in the US and improving their brand awareness with “impressive” EV penetration and new car launches. Improved governance at companies such as Hyundai also makes them attractive, he added. Still, Lee said he will “only add on dips” amid concerns on overall EV demand in the second half of 2023.
Timefolio is not shorting Toyota Motor Corp., as Lee thinks the world’s largest carmaker will likely continue to see short squeezes. Short interest in Toyota is at about 3% of its free float, around its highest level over the past year, according to data from IHS Markit Ltd. Toyota has surged 17% since it laid out plans in June for a major EV push.
Timefolio attributes its performance to timely bets on artificial intelligence players, accumulating Nvidia Corp. since November. Lee said the fund also scored with long positions in Korean EV battery names while shorting Chinese rivals.
Recent profit-taking in Nvidia is “a very healthy correction,” and the stock is likely to rally further after the pause, said Narci Chang, the fund’s senior portfolio manager. The fund remains overweight on memory-chip stocks, although it is “a little bit cautious” on SK Hynix Inc., which has rallied strongly on the AI theme.
