Global hedge funds increased their exposure to Chinese domestic stocks and American depositary receipts in July, according to a report by the South China Morning Post citing recent data by the prime brokerage unit at Goldman Sachs.
A Goldman Sachs note highlighted that hedge fund managers bolstered their holdings of Chinese stocks last month without revealing specific detail of the purchases. Despite the increased activity, hedge funds allocations to yuan-denominated stocks and ADRs remain near five-year lows.
Foreign investment in Chinese domestic stocks saw a boost, with overseas traders, including hedge funds and mutual funds, investing approximately $500m through the northbound investment route under the cross-border exchange link program in July, the report noted.
Goldman Sachs analysts pointed out that China’s stock valuations are currently at the lower end compared to global markets. The MSCI China index has corrected by 13% since its peak in May, underperforming developed and emerging markets by 12% and 11%, respectively, over the past three months.
The renewed interest in Chinese stocks reflects increased optimism among foreign investors that Beijing will prioritise economic growth in the near term, with senior leaders recently emphasising their commitment to achieving a growth target of around 5% for this year.
In addition to China, global hedge funds also increased their positions in Japanese stocks in July, which saw the the largest inflows in nine months. For the first time since May 2019, hedge funds are overweight in Japanese shares, with holdings at their highest levels in four years.
Emerging markets in Asia, meanwhile, saw mixed activity, with Taiwan and India seeing outflows of $3.5bn and $1bn, respectively, in July, while South Korea had $600m of inflows and Southeast Asian markets witnessed $200m of buying, according to Goldman.
