FOREIGN investment funds are moving at breakneck speed to retool their strategies in an attempt to profit from the Chinese mainland stock market whipsawed by panic, wild swings and unprecedented government intervention.

    The implosion in Chinese equity prices after a domestic, debt-fuelled buying binge has triggered a range of responses from foreign investors.

    Those who remain bullish on China’s long-run economic prospects have switched more of their focus to the Hong Kong market because valuations are lower, it is better regulated than the markets in Shanghai and Shenzhen.

    Funds that see the recent declines in the yuan, Chinese asset prices and the nation’s exports as a harbinger of much more economic pain to come are responding with an array of maneuvers. Those include betting against the currencies of Asian trading partners, and shorting British banks HSBC Holdings and Standard Chartered, who both have big exposure to China.

    Some are even buying U.S. mortgage-backed bonds on the expectation that rich Chinese will take money out of China and pour it into U.S. real estate as a safe haven.

    The investors who are betting against China or have given up on it as an investment destination are in the minority, though.

    Despite all the problems, the Chinese economy is still expected to grow at around 7 percent this year. That can’t be sniffed at given the downturns in many other major economies, such as Brazil, Russia and Canada, and only modest growth in the United States and Europe.

    That doesn’t mean many believe it is safe to trade the Chinese mainland market, where the Chinese authorities have cracked down on short-selling, detained a journalist for spreading false information and re-routed pension money into equities.

    “The recent volatility I think has cooled the ardor of some because they are realizing what an unusual instrument the Shanghai Stock Exchange is,” said William Kirby, a Harvard Business School professor who studies China and is involved with several funds that invest in the country, including as a director of the US$248 million China Fund Inc.

    The safer alternative is seen as Hong Kong. The Hang Seng Index has dropped 24.3 percent over the past three months, compared with a 36 percent slide for the Shanghai Composite Index and a 45 percent fall in the Shenzhen A-Share Index.

    BlackRock Inc., the world’s largest asset manager, is snapping up shares of mainland companies listed on the Hong Kong exchange after the recent declines, said Jeff Shen, head of emerging markets for BlackRock. “We think it’s a value play.” (SD-Agencies)