China’s equity markets rallied in February on the back of the Deepseek news.  AI related stocks led the markets higher, which also dragged “junk” stocks to the upside. This market action was reminiscent of September and October of last year, where the beta factor became dominant while earnings yield turned negative – both moves being sharp reversals vs. the prior period.  

The Goku market neutral (Cayman) strategy saw a 0.1% return for February, with the short portfolio detracting from performance due to the market reversal. Residual alpha generation from the long portfolio remained consistent during the month.

A structural positive development has been the increasing market volumes since September 2024 on the back of the government stimulus moves.  Average Daily Traded Value (ADTV) took another leg higher since the Deepseek news, reaching CNY 1.9trn.  This level well surpasses the previous peak in 2015, which combined with the lower total China quant strategy industry AUM will continue to bode well for our strategy.  March is shaping up to be a strong month, capping off what should be solid performance for the first quarter of 2025.