04/10/24

ASIA: Global hedge funds bet big on Chinese stocks after major stimulus

As published on: ig.com, Friday 4 October, 2024. 

Global hedge funds are diving into Chinese stocks, spurred by Beijing’s massive stimulus measures – leading to the best weekly gains for Chinese equities in over a decade.

What does this mean?
During the week of September 23-27, hedge funds significantly increased their Chinese stock investments following Beijing’s expansive stimulus package. According to Goldman Sachs, hedge funds’ allocation to Chinese equities that week was the highest since records began in 2016.

Targeted investments: long positions in single stocks across sectors like consumer goods, industrials, financials, and technology
Sales: minor sales were seen only in the energy sector.
Market impact
Chinese stocks saw their best weekly gain in over ten years, driven by:

Interest rate cuts
A $114 billion fund to lift share prices
First-tier cities lifting home purchase restrictions.
Both the CSI 300 and Shanghai Composite indices experienced their biggest single-day gains since 2008.

Why should I care?
For markets: Chinese stocks on the rise.

The substantial increase in investments drove China-focused stock-picking hedge funds to a 6% return last week, their best on Goldman Sachs' record. Year-to-date gains for these funds now stand at 12.8%.

Beyond hedge funds, foreign long-term investors also upped their positions, fearing they might miss out on the rally. According to LSEG Lipper data:

$2.4 billion inflows to foreign equity ETFs focusing on Chinese stocks in the last three trading days of September
This marks a sharp contrast to the $2.7 billion outflows earlier this year
The bigger picture: a shift in global sentiment.

Ahead of the National Day holiday, a notable uptick in buying interest in Chinese stocks indicated a potential global sentiment shift. A senior markets strategist for APAC at BNY Mellon highlighted the renewed investor confidence.

With Beijing's broad stimulus measures driving a remarkable stock market recovery, the major index gains suggest global investors are identifying new opportunities in China. This reflects a broader optimism about the country's economic future.

Tags

Asia China Stocks Hedge funds