As if the coronavirus pandemic was not warping global markets enough, China's regulatory crackdown is suddenly adding new unpredictability. So how best to invest in these strange times?

Bloomberg News spoke with institutional investors with US$3 trillion (S$4 trillion) in combined assets under management to ask how they are navigating economic turmoil caused by unpredictable recoveries and China's shifting rules, which have frozen US listings and almost erased the online education sector.

Some are ramping up allocations to hedge funds - reversing a years-long retreat - hoping that active management can plot a path through a landscape of Covid-19 lockdowns and rebounds. Others are switching to undervalued stocks in Europe and India, avoiding the US-China regulatory fracas.

All recommended heightened caution and warned of a difficult recovery ahead. What follows is a look at their strategies.

TEMASEK: ASSETS UNDER MANAGEMENT OF $381 BILLION

Over the next 12 months, Singapore's investment firm Temasek will look to companies that focus on digitalisation, cyber-security providers, e-commerce and increased sustainability, according to Mr Nagi Hamiyeh, joint head of its investment group.

The last comes amid a rising tide of investors seeking to make their portfolios greener.

None of this is entirely new. Temasek and others have ploughed billions of dollars into these themes for years. But where some believe it is fully priced, Mr Hamiyeh said there was still room to grow.

Temasek remains bullish on China over the long term. Bets in the country account for 27 per cent of its portfolio. Mr Hamiyeh spoke with Bloomberg in mid-July, when China was in the midst of demonstrating its ability to inflict short-term pain. Investments in ride-hailing service Didi Global were tumbling. Since then, online education providers have been eviscerated, and tensions with US securities regulators have flared anew.

Still, he expressed optimism that valuations of Chinese companies will climb over time, even if companies are not able to access US markets. A spokesman for Temasek later added that it will continue to invest in themes including the future of consumption in China and elsewhere.

GIC: OFFICIAL ASSETS UNDER MANAGEMENT OF 'MORE THAN US$100 BILLION', ESTIMATED AT US$545 BILLION BY THE SOVEREIGN WEALTH FUND INSTITUTE

Singapore's sovereign wealth fund GIC is also positive on China, partly because of the way the country managed Covid-19, according to chief executive Lim Chow Kiat.

"China assets continue to offer good entry levels," he said. "Especially relative to so-called developed-market valuations."

The firm is embedded in China with a team in Shanghai looking for real estate deals and another in Beijing hunting for private equity opportunities, according to chief investment officer (CIO) Jeffrey Jaensubhakij.

The fund is delving into companies that focus on sustainability and technology, he said, adding that it is paying close attention to "what geopolitics forces companies to invest in".

Regulatory pressure in China, the United States and the European Union have triggered volatility in markets, creating buying opportunities for GIC. If Chinese companies cannot list in America - thus excluding a large number of potential investors - he sees other exchanges in places such as Hong Kong and Singapore as "vibrant" alternatives.

"We wouldn't necessarily be transacting directly with a US investor to take anything out of their hands," Dr Jaensubhakij said, referring to buying stakes. If "prices drop and therefore our expected return on that asset moves up and becomes compelling relative to other things available to us, then we naturally would look in".

FUTURE FUND: A$197 BILLION (S$196 BILLION)

Australia's sovereign wealth fund has pulled back from China amid the increasingly strained relationship between the two governments, according to Future Fund chairman Peter Costello.

"This is not because the government has instructed us to do it or anything like that, but we just thought in the difficulty of the situation that we have to be careful with sovereign money," he said.

Beyond politics, CEO Raphael Arndt said economic conditions were now ripe for a sustained increase in inflation - something that would be "very, very damaging" for returns, given that interest rates are effectively zero.

The fund is considering how to allocate stocks across value and quality-type strategies, recently buying stakes in wind farm operator Tilt Renewables and Telstra's cellphone towers. "They're examples of the sort of assets that we'd expect to do relatively better in that environment," Dr Arndt said.

PICTET WEALTH MANAGEMENT: 273 BILLION SWISS FRANCS (S$400 BILLION)

Pictet Wealth Management CIO Cesar Perez Ruiz is still positive about China markets, but suggests that investors apply a higher-risk premium and pick Hong Kong-listed options where possible.

Beyond geopolitics, hedge funds are back in favour. He says the uneven recovery from Covid-19 and its sudden twists and turns mean macro matters more than before. "For the first time in six years, we're positive on alternatives, with hedge funds being one of them."

While most of his peers believe inflation is transitory, Mr Ruiz believes it is stickier than people think. His reasoning is underpinned by the high cost of shipping and increased wages, as well as a lack of workers as countries attempt to produce more key goods at home.

To find good picks that can survive different stages of cycles, he is skipping metrics like return on equity. "I go sector by sector and see who has been able to keep higher gross margins," Mr Ruiz said.

NORGES BANK INVESTMENT MANAGEMENT: 11.7 TRILLION NORWEGIAN KRONER (S$1.81 TRILLION)

For Norges Bank Investment Management CEO Nicolai Tangen, who has been running Norway's giant sovereign investment vehicle for almost a year, rising inflation could hit both its bond and stock market holdings. Because of its massive size, it has few options but to "sit through it".

Despite plans to sell down various assets over environmental, social and governance concerns, Mr Tangen said these and regulatory concerns were not necessarily reasons to cut back in China. The country accounts for 5 per cent of the investment vehicle's allocations.

"We have large positions there and we really believe in a lot of those business models," he said, citing technology companies as an example.

LOMBARD ODIER (PRIVATE BANK): CLIENT ASSETS OF 316 BILLION SWISS FRANCS

For Lombard Odier CIO Stephane Monier, banking, auto and energy stocks should perform well over the coming months while European equities, in particular, trade at a discount to US peers.

He predicts that increased funding from overseas investors into the region's equities and higher rates of Covid-19 vaccination could fuel growth in Europe in the third quarter.

In the longer term, the bank continues to be bullish on China. Mr Monier is planning to increase the fund's China equity exposure by 1 percentage point to 4 per cent as regulatory turmoils ease. He expects that it could take about six months for the dust to settle.

"We think a large portion of the needed regulatory adjustments are now behind us," he said.

Mr Monier favours China-listed stocks that face less government intervention, including in banking, renewable energy, materials and industrial stocks, and is cautious about tech, property, education and healthcare.

BLOOMBERG