(Bloomberg) -- In a year when the average China-focused hedge fund lost money and peers with a broader Asia focus only notched up small gains, there were some standout performers.

Sino Vision Greater China Market Neutral Fund, Ubiquant Asia Pacific Quantitative Hedge Fund, Toroa Master Fund and Long Corridor Alpha Opportunities Fund were among those that chalked up gains of more than 25% last year, reaping the rewards of divergent bets on China during a period of intense market turmoil.

Those investment performances stand in stark contrast to the 13% slide on the MSCI China Index of equities last year. They also underscore how some funds are delivering for investors despite increasing pressure facing a group of managers that used to dominate the regional hedge fund scene — China-focused portfolios and Asia funds that lean toward the world’s second-largest economy.

The Eurekahedge Greater China Hedge Fund Index has lost more than 15% over the last two years, highlighting the challenges of navigating China’s stiff economic headwinds, and the policy uncertainty is already claiming victims just weeks into the new year. Eurekahedge Asian Hedge Fund Index last year added just 2%. Veteran investor Chua Soon Hock decided to shut his Asia Genesis Macro Fund after losing nearly 19% in the first weeks of January on a wrong-way bet that Japanese stocks would underperform Hong Kong and China peers in the new year.

Long Corridor Asset Management Ltd.’s hedge fund climbed 26.7% in 2023, when about three quarters of its profit came from Greater China trades. One of those was buying beaten down Hong Kong-listed shares of PetroChina Co. Ltd. and Cnooc Ltd., according to Chief Investment Officer James Tu. After Cnooc was added to a sanction list by the Trump administration in 2021, some international investors dumped the stock. Tu’s firm, which oversees about $300 million, began to buy the shares in 2022, having rotated away from a similarly premised wager on the rebound of sanctioned and sold-off Chinese telecommunications operators the year before. 

Even after PetroChina climbed 45% in Hong Kong trading last year and Cnooc surged 30%, both companies trade well below valuations of global peers. 

“When things are left for dead, oftentimes big opportunities present themselves,” Tu said in an interview.

Meantime, Toroa Management HK Ltd.’s fund notched a 27.5% return by reducing its China exposure and pivoting to industries insulated from geopolitical tensions. Toroa’s more than $200 million Asia-Pacific hedge fund began trading in the third quarter of 2021 with more than half of its gross exposure — the combined dollar value of bullish and bearish wagers — to China, said people familiar with the matter. The firm, helmed by Silas Xu and backed by Hillhouse founder Zhang Lei, started to reduce the weight from early 2022, including bets on Chinese healthcare, the people said, who asked not to be identified discussing private information. Now China accounts for just one-sixth of its gross exposure.

Instead, Toroa has shifted to areas such as advanced manufacturing, energy transition, electrification, automation as well as software and services. South Korea and Japan were its biggest return drivers last year in about equal parts, especially from less-researched, mid-sized firms with technological edges, they said. 

Since 2022, Toroa also built up wagers against some domestic and multinational consumer companies such as those that supply infant formula and liquor to China, betting they would not be able to live up to high market expectations, said the people. In Japan, it has held short positions in real-estate investment trusts for more than a year, convinced there is an oversupply of office space in the country.

The Sino Vision fund’s 31.9% gain last year was primarily driven by AI-related bets in Taiwan. It has been lowering its gross exposure to China and Hong Kong since it peaked in the first quarter of 2022 due to fewer attractive opportunities, a spokesperson for the firm said in an email.

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