Global hedge funds have significantly increased their purchases of Chinese equities following this week’s politburo meeting, buying at their fastest pace since October 2022, according to a report by Goldman Sachs. This uptick in investment was primarily driven by mainland A-shares and Hong Kong-listed shares, while U.S.-listed Chinese American Depositary Receipts (ADRs), predominantly internet companies, saw smaller inflows.
Although the report did not provide specific details on the volume of purchases, it highlighted that these inflows were driven by long-buys and, to a lesser extent, short covers. The sectors that attracted the largest purchases by hedge funds included consumer discretionary, staples, financials, materials, and industrials.
This surge in investment comes in the wake of a rebound in Chinese stocks, spurred by policymakers at the latest Politburo meeting expressing clear support for capital markets and signaling the introduction of larger easing measures to stimulate the economy. As a result, Hong Kong’s Hang Seng Index rose 3%, and China’s CSI 300 Index gained 2% this week. However, both markets have largely underperformed major global indexes so far this year.
Despite the recent uptick in investment, global investors have been withdrawing from China over the past few months due to concerns about a slower-than-expected post-pandemic economic recovery and renewed Sino-U.S. tensions. Goldman Sachs noted that hedge funds’ exposure to Chinese equities remains around the low levels last seen in November 2022 and well below five-year averages.
However, sentiment appears to be improving in July. Net foreign buying in mainland Chinese equities through the China-Hong Kong Stock Connect program recorded 20 billion yuan so far this month, marking their best month since April, according to official data.
This recent shift in hedge fund activity could signal a change in investor sentiment towards Chinese equities, potentially leading to increased investment in the region. However, investors should remain cautious and closely monitor developments in the Chinese market, given the ongoing economic and geopolitical uncertainties.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always conduct your own research or consult with a financial advisor before making investment decisions.
Here are five ETFs that provide exposure to Chinese stocks:
iBET ETF: The ETF is currently priced at $11.00 and has seen a 25.94% price change over the last 6 months. The ETF has over 25% exposure to Stocks listed on the HKEK including, MGM China, Wynn Macau and Sands China.
iShares China Large-Cap ETF (FXI): This ETF tracks an index of large-cap Chinese equities that trade on the Hong Kong Stock Exchange. The fund is heavily weighted towards financials and includes companies such as Tencent and Alibaba.
KraneShares CSI China Internet ETF (KWEB): This ETF offers exposure to Chinese internet and internet-related companies, including names like Alibaba, JD.com, and Baidu.
SPDR S&P China ETF (GXC): This ETF tracks a market-cap-weighted index of publicly listed companies domiciled in China, providing broad exposure to the Chinese stock market.
Invesco Golden Dragon China ETF (PGJ): This ETF tracks a market-cap-weighted index of U.S.-listed companies that derive a majority of their revenue from the People’s Republic of China.