BEIJING – China’s quantitative hedge funds are bouncing back after suffering steep losses during a July rout, with all of the most popular strategies posting higher returns than benchmarks.Quant funds offering so-called index enhancement strategies beat stock gauges across the market. The average of 692 such products tracked by Shenzhen PaiPaiWang Investment & Management returned 9.1 per cent in the week ended Aug 7.That was 2.9 percentage points higher than the average return on the stock indexes, showing that quants’ promise of offering investors excess returns – known as alpha – is coming good after a rocky July. Many of the country’s long-only quants plunged during the sell-off, losing an average of 17 per cent as investors around the world dumped shares linked to artificial intelligence.All seven index-enhancement strategies tracked by China Merchants Futures Co. generated alpha for the week ended Aug 14. Index-enhancement funds linked to CSI A500 and CSI 500 both beat their benchmarks by 1.2 percentage points, the firm said.The rebound in China’s 2.6 trillion yuan (S$491 billion) quant sector may extend further as markets normalise, but the recovery remains uneven, according to PaiPaiWang. That suggests the weakest players face a hard climb back. The steep losses in July showed how rapidly crowded trades and changing market structure can overwhelm otherwise diversified portfolios.PaiPaiWang, which tracks hedge funds, attributed the snapback to three forces: a technical rebound from oversold levels after July’s emotion-driven sell-off, a return of liquidity, and the recovery of quant factors – particularly volume-price signals – that had broken down in the rout.The CSI 1000 gauge of many quants’ favourite small-cap stocks gained 10 per cent in the first two weeks of this month after plunging 20 per cent in July. The large-cap CSI 300 also rallied 2 per cent in the period after dropping 8 per cent.Shanghai-based Mingshi Investment Management offers one example of how quickly the same models that hurt funds in July could benefit from the market rebound. Its all-market quantitative stock-selection strategy gained 16.6 per cent in the first week of August, according to a letter to investors seen by Bloomberg.The firm attributed its July drawdown in part to a model-generated tilt toward technology stocks, an exposure that had contributed to strong first-half returns before suffering losses in July.Left aloneRather than overriding the model during the rout, Mingshi said it allowed the strategy to continue responding to its signals, including by adding technology exposure during the panic before naturally rotating towards other industries as conditions changed in August.“Market performance once again reaffirmed the essence of quant – letting data-driven, algorithmic strategy models make decisions, rather than relying on discretionary timing or human intervention,” it said in the letter.The product gained a further 2.1 per cent in the week ended Aug 14, extending 2026’s return to 25.4 per cent, ranking it at the top of the 65 quants tracked by Guolian Minsheng Securities Co.Based on data compiled by the broker, Hangzhou-based Everon Quant delivered the strongest and most consistent bounce in excess returns across the CSI 300, CSI 500 and CSI 1000 indexes for the week. It beat the CSI 300 by 1.96 percentage points. Shanghai-based Hainan Semimartingale Private Fund Management LP bettered the CSI 500 by 2.4 percentage points, taking its year-to-date excess to 17 percentage points, the best for that index.“Semimartingale’s model involves no manual intervention in response to market conditions,” the firm said in a text message. “With market conditions stabilising, excess returns have shown a natural recovery.”Representatives for Mingshi and Everon declined to comment. Still, the broader recovery remains incomplete. Less than 8 per cent of quant long-only funds had fully repaired their average 16 per cent loss in July as of Aug 7, according to PaiPaiWang. That’s lower than the 13.5 per cent of all hedge funds that had recovered, the data showed.A rally across small- and mid-cap stocks, rather than gains concentrated in a handful of technology names, would support index-enhancement and diversified stock-selection strategies. A further easing of the unusually high correlations among momentum, liquidity and volatility factors would help multi-factor models recover some of the diversification they lost in July. Bloomberg