Hedge funds are ramping up exposure to Chinese equities amid renewed optimism over US-China trade relations, with US funds in particular having resumed buying activity last week, according to a report by Reuters citing a note from Morgan Stanley.
The investment bank reported that funds targeted both US-listed Chinese ADRs and onshore A-shares.
The resurgence comes as equities rallied ahead of high-level US-China trade talks held in Geneva over the weekend. The MSCI China Index climbed 2.4% while the CSI 300 rose 1.9% on the week, recouping much of the losses incurred following President Trump’s recent tariff escalation.
Morgan Stanley noted a clear divergence in regional positioning. While funds were selectively rotating back into China, they were paring back allocations in other parts of Asia, including Thailand, Hong Kong, India and Australia.
The trade discussions in Geneva concluded with both Washington and Beijing striking a constructive tone. Markets are now watching for concrete follow-ups, especially as President Trump hinted at dialing down his sweeping 145% tariff on Chinese goods, suggesting for the first time that an 80% level “seems right.”
Despite the recent inflows, Morgan Stanley pointed out that hedge fund exposure to China remains well below historical highs, with most managers still treating it as a tactical, short-term play rather than a strategic allocation.
