TAIPEI, Taiwan (TheStreet) -- In a sign that the worst may be over for Chinese stocks, some of the most aggressively managed China funds are starting to see gains again rather than losses.  

China-focused hedge funds had an average gain of 1.2% in September after huge losses during July and August, according to  Singapore-based research firm Eurekahedge. That compares to a 1% average gain for funds that invest in Asia, not including Japan.

Although hedge funds are usually open only to institutions and wealthy individuals, their performance is a positive sign for average investors who buy stocks and mutual funds that invest in China.

Two U.S.-listed China funds -- Fidelity's Emerging Asia Fund (FSEAX) and the Invesco Greater China Fund (AACFX)  -- each gained about 10% in October. Also, well-known Chinese companies that are listed in the U.S. including e-commerce giant Alibaba Group (BABA) and Internet content provider Baidu (BIDU)  are up sharply since mid-year.

Chinese A shares, which only trade in China, stabilized in September after plunging about 40% from their peak in early June. The market rout was attributed to Mom-and-Pop investors dumping their shares to pay back margin loans and foreign funds panicking about slowing growth in the Chinese economy.

"The major thing is that greater China markets had bottomed out following the fall in June, July and August," said Hassan Mohammad, senior fund research analyst with Eurekahedge. About four-fifths of China hedge funds have a long bias, he added. "Once the equity market recovers from its losses, it translates to fund performance."

ChiNext, an umbrella group for 484 Chinese startups and a favorite among China hedge funds, jumped roughly 22% in October after a 4.5% gain last month. ChiNext is packed with tech firms that had high valuations before the June crash.

Chinese markets were also helped in October by the Chinese government's yuan currency liberalization, a boon to offshore portfolio investors.

"The growth stocks had led the declines in the market selloff, so it was natural that they would be the ones that would bounce the quickest," said Nitin Dialdas, chief investment officer with Hong Kong fund manager Mandarin Capital.

Hedge fund sponsors are among the hundreds of foreign institutions that have won Chinese government-awarded quotas to trade A shares. Individual foreign investors cannot trade those shares themselves but can join China hedge or mutual funds.

Among the China hedge fund managers are Pine River Capital Management of the United States and APS Asset Management of Singapore.

The APS Greater China Long Short Fund took profits before China's mid-year stock crash after APS saw the indices rise sharply before June. The firm with USD3.3 billion in total investment assets increased exposure when the fall eased.

"We think after the severe correction, the market will stabilize and move up," APS Chief Investment Officer Wong Kok Hoi said. "We also believe valuations for some of the companies in China we know well look even more attractive."

Growth in hedge funds should ultimately lead mutual funds, Hassan said. 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.