Chinese hedge funds were hit by sliding equities last month, according to a provider of benchmarks of global hedge fund performance.

Hedge funds investing mainly in China suffered significant losses in July as stock markets plummeted, according to Hedge Fund Research.

The HFRI China Index fell 7.7 per cent over the month, while the Shanghai Composite Index slid over 14 per cent, including a single-day drop of 8.5 per cent.

After a record $126.3 billion in total capital invested in Asian hedge funds during the first half of the year, China's performance losses in July cut an estimated $10 billion off this figure.

“Chinese financial markets have come under intense pressure, encompassing not only directional losses, but also liquidity, structural and political pressure, as Chinese equities have posted the sharpest declines since 2007,” said HFR's president, Kenneth Heinz.

China's losses were also evident in other benchmarks of Asian hedge fund performance, including the HFRI Emerging Markets: Asia ex-Japan Index, which fell 5.6 per cent in July, bring year-to-date performance down to 4.5 per cent. Meanwhile, the HFRI Japan Index dipped 0.2 per cent.

China's recent stock market turmoil has seen many listed equities suspend trading and many planned IPOs hold off on proceeding, the firm pointed out. It also, however, highlighted opportunities created by the recent establishment of the National Team Funds, which has acted as a liquidity provider to Chinese equity markets. These funds, established by Chinese authorities, typically have up to RMB40 billion ($6.25 billion) at their disposal.

“While it is likely that this regional financial turmoil will continue through year-end, creating complex and unpredictable outcomes, hedge fund strategies which reduce and minimise direct equity market beta represent an important tactical opportunity for global investors to participate from exposure to many of these trends while reducing unwanted strategic and structural risks,” said Heinz.