A top-performing Chinese macro hedge fund has slashed its holdings in property stocks, as their declines hurt returns just two months after predicting a major rebound in the sector.

Shanghai Banxia Investment Management Center’s flagship Banxia Macro Fund slumped 9.8% in May, the biggest monthly loss since at least 2018, after it sold property-related shares and cut commodities positions, according to a letter to investors that was seen by Bloomberg News.

China is considering a new basket of measures to support the property market after existing policies failed to sustain a revival, Bloomberg reported this month. The reversal by Banxia, which was among the most bullish investors in April, adds to pessimism that the ailing sector’s turnaround will take longer than many hoped.

While property sales rebounded in the first quarter, the situation worsened in April and May, dropping below a level seen in the final quarter of 2022, the firm, led by founder Li Bei, wrote in the letter. The firm now expects the sector to bottom out in the first half of next year “at lower price and sales levels,” rather than the past quarter as previously estimated, it said in the document.

Read how Goldman expects L-shaped recovery in China property

Banxia’s outlook for the economy was already relatively low, according to the letter. “The extent and pace of the economic downturn still exceeded our expectations” as property sales slid, the firm wrote.

Li’s firm had previously expected developers that hadn’t defaulted would see an expansion in market share and wider margins, according to an earlier investor letter in March. That could boost some firms’ stock prices by as much as 10 times from current levels, it said at the time.

Li declined to comment to Bloomberg News.

Banxia Macro has lost 5.5% this year through May. Despite the decline, it ranks the best performer among multi-asset funds running at least 10 billion yuan ($1.4 billion) for the past five years, and No. 2 for all hedge fund strategies, according to Shenzhen PaiPaiWang Investment & Management Co., which compiles results of Chinese hedge funds.

Banxia Macro returned an annualized 23% as of May 31, since inception in 2017, according to the latest letter. That outperformance helped it expand assets above 10 billion yuan last year, making it one of the largest macro hedge funds in the country.

The May loss was also due to a lack of liquidity in some assets, such as state-owned developer shares, which made it more costly to reduce positions, according to the letter.