Global Hedge Funds Invest Heavily in Chinese Equities

By Summer Zhen

HONG KONG (Reuters) – Global hedge funds have turned their attention to Chinese equities following significant stimulus measures from Beijing, resulting in the strongest weekly buying on record, according to a note from Goldman Sachs.

Hedge funds have accelerated their allocations to China’s economy, with purchases of Chinese stocks during the week of Sept. 23-27 reaching their highest levels since Goldman Sachs began tracking in 2016.

This investment surge was primarily driven by long positions in individual stocks, with a focus on sectors such as consumer goods, industrials, financials, and information technology. The energy sector was the only one that experienced marginal selling by hedge funds, as noted by the bank.

Chinese stocks rebounded significantly, marking their best weekly performance in over a decade after the government unveiled a broad stimulus package that included interest rate cuts and a $114 billion fund to boost share prices.

The upward momentum continued with first-tier cities lifting home purchase restrictions over the weekend, leading to substantial single-day gains in major indices like the CSI 300 and Shanghai Composite, the largest since 2008.

As a result, China-focused hedge funds recorded a 6% return last week—their best weekly performance on Goldman Sachs’ records—with an estimated 12.8% gain year-to-date.

While being underweight on Chinese stocks had been the largest consensus strategy in recent years due to a gloomy economic outlook and geopolitical tensions, experts believe there is a shift happening among investors.

Not only hedge funds are participating; many foreign long-term investors are also starting to fear missing out on the upswing.

LSEG Lipper data revealed that foreign equity exchange-traded funds (ETFs) focusing on Chinese stocks gained $2.4 billion in inflows during the last three trading days of September—marking a sharp contrast to $2.7 billion in outflows from the beginning of the year until Sept. 25.

Wee Khoon Chong, senior markets strategist for APAC at BNY, remarked, “We have seen a substantial pick up of buying interest in Chinese equities into National Day holiday. This is encouraging and suggests a potential shift in sentiment of global investors towards China after a long period of outflows.” He noted strong buying had begun on Thursday, indicating a significant change in sentiment among foreign long-term investors.