After years of significant capital withdrawals, some global investors are beginning to warm up to China-focused hedge funds again, according to a report by Bloomberg citing the findings of a new survey conducted by BNP Paribas SA.
The results reveal a cautious shift in sentiment, marking a potential turning point for funds targeting the world’s second-largest economy, with a net 7% of survey respondents saying they plan to increase allocations to China hedge funds across all strategies in 2025. While modest, this represents a reversal from 2024, when 17% of respondents reduced such investments, and a dramatic improvement from 2023, when 42% withdrew capital.
The survey, conducted between December and January, polled 229 allocators managing $1.4tn in hedge fund investments globally. The timing coincided with Chinese government stimulus measures designed to revive the economy and stabilise capital markets, fuelling a rally that pushed the MSCI China Index up more than 20% since August.
“Investors believe that sentiment has been overly negative and that market positioning has cleared, creating a more compelling opportunity for new investments in China,” said Nick Silver, BNP Paribas’s Asia-Pacific head of prime services, in a recent interview. “Performance in 2024 has also supported the case for further allocations.”
Indeed, a Eurekahedge Pte index tracking Greater China hedge fund performance climbed 8.6% last year, matching global hedge fund averages. Strong gains in the second half of the year, particularly in September, cemented its first annual increase since 2021.
Despite the rebound, challenges remain. The MSCI China Index is still down by half from its February 2021 peak, reflecting the lingering effects of domestic industry crackdowns, geopolitical tensions, and pandemic-related disruptions. The index currently trades at nearly 12 times estimated earnings, significantly lower than the S&P 500’s 26 times.
