Hedge Funds Drive Record Weekly Purchasing of Chinese Stocks Amid Stimulus Optimism

By Summer Zhen

HONG KONG – Global hedge funds have increasingly turned to Chinese equities following Beijing’s unexpectedly large stimulus measures, resulting in the highest recorded weekly buying activity, according to a report from Goldman Sachs.

Hedge funds significantly ramped up their investments in China’s economy, with purchases of Chinese stocks during the week of September 23-27 reaching a record high since Goldman Sachs began tracking data in 2016.

The surge in inflow was primarily driven by long positions, especially in individual stocks, with investors focusing on sectors such as consumer goods, industrials, financials, and information technology. Energy was the only sector to see a slight sell-off from hedge funds.

Chinese stocks rebounded dramatically, achieving their best weekly gain in over a decade after the government unveiled a wide-ranging stimulus package, which included interest rate cuts and a substantial fund allocated to boost share prices. The buying frenzy persisted as major cities relaxed home purchase restrictions over the weekend.

On the following Monday, the benchmark CSI 300 index recorded its largest single-day gains since 2008. This robust rally enabled hedge funds targeting China to post a 6% return last week, marking their strongest weekly performance on record. Year-to-date, these hedge funds have seen an estimated gain of 12.8%.

While the predominant strategy in recent years had been to underweight Chinese equities due to a bleak economic forecast and geopolitical challenges, a shift appears to be underway, according to investors and analysts. Many foreign long-term investors are now wary of missing out on potential gains.

Recent data indicated that foreign equity exchange-traded funds (ETFs) focusing on Chinese stocks experienced inflows of $2.4 billion in the last three trading sessions of September, a stark contrast to the $2.7 billion in outflows recorded from the beginning of the year up until September 25.

“We have witnessed a noticeable uptick in buying interest in Chinese equities as we approach the National Day holiday. This trend is promising and signals a possible change in global investors’ sentiment toward China after a prolonged period of outflows,” remarked Wee Khoon Chong, a senior markets strategist for APAC at BNY. His firm tracks nearly $50 trillion in assets.

Chong noted that the recent shift in sentiment among foreign long-term investors was evident with strong buying activity beginning on Thursday.