Hedge funds are showing renewed interest in China’s $19tn equity market, three years after many shunned it as “uninvestable,” drawn by tech opportunities and the chance to diversify beyond crowded US assets, according to a report by Reuters.
Data and anecdotal evidence indicate a growing influx of foreign capital. Morgan Stanley reported that August marked the largest monthly buying of Chinese stocks by global hedge funds in six months, while Polar Capital increased its China allocation to over 30% of its emerging market portfolio. Cambridge Associates has fielded roughly 30 client inquiries on China-focused mandates this year, a stark contrast to 2023.
Investors are attracted by the country’s AI advancements, semiconductor innovation, and biotech breakthroughs, with Shanghai and Hong Kong markets hitting decade and four-year highs respectively.
Despite economic headwinds, including slowing factory output and foreign direct investment, hedge funds see the long-term opportunity in China’s innovative sectors. Some US and European allocators are planning trips to China and Hong Kong later this year to explore potential investments for the first time since Covid.
