SINGAPORE (BLOOMBERG) - As US and Chinese negotiators try to hash out a trade deal, one prominent Singapore hedge fund is preparing for a full-blown "economic war" - hoarding cash and shorting American stocks that are at risk of retaliation from Beijing.
APS Asset Management Pte, which had funds under management of US$3.2 billion (S$4.37 billion) as of March 31, made waves last year when its chief investment officer Kok-Hoi Wong shorted Chinese e-commerce giant JD.com Inc just before the company's share price crashed.
He now says the likelihood of a trade war is the biggest risk for equity markets and is shorting firms from Apple Inc to US-operated Macau casinos.
Mr Wong's analysis and resulting investment strategies echo those of fellow investors including Mr Ray Dalio, the billionaire founder of Bridgewater Associates LP, who recently said that the US and China face fundamental differences that negotiations can't solve.
"We are well past the stage of trade tensions, trade friction, a trade dispute or even a tariff war between two superpowers," Mr Wong wrote in a note to colleagues and clients last week. "This is economic war."
Mr Wong said APS was shorting US companies at risk of retaliation from China.
They run the gamut from Macau casinos that may have their licences revoked to Apple, which generates around 17 per cent of its sales in Asia's biggest economy.
Casino operators in particular are "easy targets", he added.
The gaming licences for Macau's six key players expire in 2022.
If a casino operator is "disqualified from bidding, or qualifies but fails to submit a high enough bid to secure the licence, then the stock will go down to zero", Mr Wong said, noting that Wynn Macau Ltd was particularly vulnerable. "This is the huge risk that shareholders face."
Aircraft from Boeing Co, as well as cars from General Motors Co and Ford Motor Co, are all goods that could get caught up as collateral damage in the worsening trade spat, along with a range of consumer brands from Coca-Cola Co to Starbucks Corp and McDonald's Corp if the conflict is taken to the extreme.
In his note, Mr Wong said that APS' investment strategy has been largely conservative since 2018, with the firm's China portfolios holding more cash.
"For our Asia Pacific Long Short strategy, where we have much more flexibility in expressing our view, the strategy currently has a negative net exposure of 40 per cent, which is the largest in the strategy's history," Mr Wong said.
For the group's long-only China funds, APS has significantly reduced its exposure to exporters and is concentrating its investments in domestic companies, he said.
Mr Wong did note, however, that "politics can change overnight, especially with Trump, so APS will monitor this overarching development closely".