(Feb 2): For most Asian hedge funds, 2022 proved to be a year of pain as a gauge of regional fund returns finished the year down 8.3%.

But some money managers beat the odds and turned a profit. In a volatile era where active trading should theoretically trump index investing, here’s how they did it and some of the opportunities they see in the year ahead.

Dymon Asia Capital’s MSIF fund enjoyed a 5.1% gain in 2022, growing its assets under management to $2.3 billion. The key drivers to returns came from anticipating directional moves in Asian currencies, relative value trades in rates, and volatility trades in equities, according to Kenneth Kan, Dymon Asia Capital deputy chief executive officer.

For the year ahead, China’s reopening is a theme much of the firm is watching. Chinese “revenge traveling” after the lifting of restrictions could help currencies such as the Thai baht, the Singapore dollar, the Korean won and the euro. Dymon said consumption activities have already started picking up and expects this to accelerate after the Lunar New Year holidays end.

In a strong US dollar environment, “one could put on a relative value FX trade against another country that could see less tourists from China,” Kan said, citing India as an example with comparatively few Chinese arrivals. “In equities, the China reopening trade will benefit travel, hospitality, and luxury stocks in particular.”

The Singapore-based manager, helmed by Millennium Management alumnus Jimmy Lim, scored a 14.3% gain without a down month last year, with its assets under management sitting at US$1.1 billion.

One trade that did well was a year-long bet through November on the Singapore dollar to strengthen against a basket of currencies of its trading partners. It anticipated the island state to be the first in the region to exit Covid restrictions, leading to higher trade and tourism flows. A further boost came from the central bank’s move to strengthen the currency to combat inflation, according to Lim.

Modular also envisioned post-Covid reopening would help Malaysia absorb labor displaced from service industries, bringing wage pressure and leading to rising local interest rates. The wager paid off when Malaysians hoarding the greenback led to tighter liquidity and credit conditions, forcing rates up, said Lim.

Modular built a position in October that would profit from a rebound of the yen when it weakened to around 150 to the dollar. The company benefited when Japan reopened its borders that month, Lim added. It also had various Japanese government bond wagers, anticipating earlier-than-expected Bank of Japan yield curve control changes.

Modular started betting in November that China would exit Covid restrictions sooner than the market anticipated, shifting focus to boosting consumption and helping hard-hit industries to stabilize and recover.

“This would mean support especially in the property sector and also easing of technology sector constraints,” Lim said. “In this process, liquidity will have to be kept loose or at least not tighten.”

He expects the long Chinese bonds and equity trades to continue to work out past the holidays.

Chua Soon Hock retired from the hedge fund industry for many years before deciding to return with a fund in 2020. Last year his macro fund returned 15.32%, with assets standing at US$173 million. Much of this was thanks to shorting US stock indexes as well as US Treasury bonds. His fund switched the latter to a long position in the third quarter amid rising interest rates.

Now the fund is expecting more uncertainty from geopolitical tensions, supply chain challenges, inflation and interest rate pressure. Asia Genesis plans to trade the Nikkei 225 Index, predominantly on the short side, with two-way swings expected in the market, the firm said in a note to investors.

“2023 is likely to have its share of turbulence, where we will witness shorter bull markets with more frequent bear phases,” the company said in the note. “We can anticipate further weakness in housing and the most rates-sensitive components of consumer spending, before further knock-on effects on income, employment, profitability, and asset prices.”

Asia Genesis’ other investment ideas include long bets on Hong Kong’s Hang Seng Index and the Singapore dollar, and tactically shorting the Japanese yen against the US dollar.