Hedge Funds Show Strong Appetite for Chinese Stocks Amidst Stimulus Prospects

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Global hedge funds have exhibited a strong interest in Chinese equities following a recent politburo meeting, resulting in a surge of purchases on Tuesday at a pace not seen since October 2022, according to a report by Goldman Sachs.

The inflows were primarily led by mainland A-shares and Hong Kong-listed shares, while U.S.-listed Chinese American Depositary Receipts (ADRs), mainly internet companies, saw more modest increases in investment, the report added. The data did not provide specific volume details but highlighted that the inflows were driven by long-term buys, with some short covers contributing to the uptick.

Notably, hedge funds displayed significant interest in various sectors, with consumer discretionary, staples, financials, materials, and industrials witnessing the largest purchases.

The renewed interest in Chinese stocks comes as policymakers expressed explicit support for capital markets and indicated their intention to introduce substantial easing measures to bolster the economy during the latest Politburo meeting.

This week saw a rebound in Chinese stocks, with Hong Kong’s Hang Seng Index surging by 3% and China’s CSI 300 Index gaining 2%. Both markets had experienced relatively lackluster performance compared to major global indexes throughout the year.

The increased investment by global hedge funds is a notable shift in sentiment, especially considering the recent period of foreign investors withdrawing from Chinese markets due to concerns over the post-pandemic economic recovery and escalating Sino-U.S. tensions.

Goldman Sachs highlighted that despite the recent surge in inflows, hedge funds’ overall exposure to Chinese equities remains relatively low, comparable to levels last seen in November 2022 and well below five-year averages.

However, positive sentiment appears to be gaining momentum in July. Official data shows that net foreign buying in mainland Chinese equities through the China-Hong Kong Stock Connect program recorded 20 billion yuan so far this month, marking the best month since April.

The surge in investment by hedge funds reflects growing confidence in the Chinese market’s potential and underscores the impact of policymakers’ pro-market statements. As stimulus prospects and easing measures gain traction, investors are expressing renewed interest in Chinese equities, hinting at potential opportunities and growth in the market ahead.