M UpdateAsia Quantitative Strategy | Asia PacificADRs Flows Master – Institutional Ownership & Short InterestIn 2023, trading activities of Asian corporate ADRs witnessed an uptick, while that of global equities experienced a decline. From 4Q23, institutional investors, led by hedge funds, have shifted to be net buyers on these ADRs. We launch this monthly report to track the flows going forward. Morgan Stanley Asia Limited+Gilbert Wong, CFAQuantitative Strategist Gilbert.Wong@morganstanley.com +852 2848-7102 Jason Ng, CFAQuantitative Strategist Jason.Dl.Ng@morganstanley.com +852 2848-8845 Laura WangEquity Strategist Laura.Wang@morganstanley.com +852 2848-6853 Morgan Stanley appreciates your support in the 2024 Institutional Investor All-Asia Research Team Survey. Request your ballot here. Exhibit 1 : Quarterly net fund flows to Asian ADRs by fund types (35,000) (30,000) (25,000) (20,000) (15,000) (10,000) (5,000) - 5,000 10,000 15,000 20,0001Q20162Q20163Q20164Q20161Q20172Q20173Q20174Q20171Q20182Q20183Q20184Q20181Q20192Q20193Q20194Q20191Q20202Q20203Q20204Q20201Q20212Q20213Q20214Q20211Q20222Q20223Q20224Q20221Q20232Q20233Q20234Q2023MTDMutual Funds/ETFsHedge FundsHedge funds have started to net buy on Asian ADRs since 4Q2023. Source: FactSet, EPFR, MorningStar, Morgan Stanley Research; data coverage: Jan 2016 to Jan 2024.Global investors incrementally expressed their views in Asia via trading ADRs throughout 2023, in which hedge funds were the most active across investor types. Per our estimations, global institutional investors were net buyers of ADRs between 2016 and 2019, but turned net sellers between 2020 and 2023 ( Exhibit 1 ). A recent positive sign we noted was that hedge funds have been net buying the segment again since 4Q23, which was last seen in 2Q20. For MTD flows, institutional investors were net buyers on ADRs of issuers from Taiwan and Singapore, two-ways on India, and net sellers on China ( Exhibit 4 ). Hedge funds led the inflows into ADRs from Taiwan, India and Singapore, with flows at US$0.44bn, US$0.48bn, and US$0.47bn, respectively. TSMC, HDFC Bank, and Sea Ltd. were top of the buy list ( Exhibit 8 ).On the flip side, hedge funds led the selling of Chinese ADRs, which saw significant net selling from hedge funds MTD, as well as rising short interest. New shorts were mostly added on Alibaba and NIO. No meaningful short covering was recorded on other issuers ( Exhibit 11 ). Yet, long-only managers were selectively buying the dip on Chinese ADRs with solid growth profiles, like PDD, though these inflows were not enough to offset the hedge fund selling. Meanwhile, TSMC's ADR also recorded net inflows from long-only funds ( Exhibit 6 ).Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivi...
