Global money managers are once again venturing into China's markets, moving past years of aversion, according to recent reports. This shift is largely attributed to a world-beating stock rally, which has seen a $2.7 trillion equity gain onshore this year, and the country's significant advances in high-tech industries, particularly artificial intelligence and semiconductors. Goldman Sachs Group Inc. noted that global hedge funds were the most active in onshore equities last month in recent years, a stark contrast to 2021 when some clients considered the market "uninvestable."
Pacific Investment Management Co. indicated that investors are now more concerned about missing out on opportunities than the inherent risks. Official data show a coordinated rise in foreign inflows across all asset classes, an event that has occurred in only three of the past 10 years. This turnaround follows a period where the market fell out of favor with global investors due to prolonged regulatory crackdowns and a spiraling property crisis.
Foreign investors boosted their holdings of onshore stocks, bonds, loans, and deposits in the first half of this year, marking the first simultaneous increase since 2021. Net inflows through June have already surpassed the 2024 annual tally by approximately 60%, according to data from the People’s Bank of China. Morgan Stanley reported that inflows from foreign long-only funds reached $1 billion by the end of August, reversing last year's $17 billion outflows. Despite this improvement, global funds remain 1.3 percentage points underweight in China, although Asia ex-Japan managers have turned overweight.
Strategists like Laura Wang of Morgan Stanley observed that over 90% of clients expressed an explicit willingness to increase their China exposure, the highest level of interest since early 2021. Kinger Lau, a Goldman Sachs strategist, highlighted that global hedge funds' gross flows in August were the largest in recent years, indicating increased foreign investor participation in China equity, particularly A-shares. UBS AG's Thomas Fang emphasized that the vast gap between China’s global economic footprint and the low single-digit allocation from global investors presents a significant long-term opportunity, affirming that "China is not uninvestable."
