Hedge Funds Ramp Up China Stock Purchases at Fastest Pace Since June

Hedge Funds Return to Chinese Market with Force

Data from Goldman Sachs’ prime brokerage business reveals that hedge funds are buying Chinese stocks at the fastest pace since the end of June, reflecting a shift in sentiment towards the world's second-largest economy.

Details of the Purchases

Analysts at Goldman Sachs indicated that the buying was driven by new long positions and, to a lesser extent, short covering, at a ratio of 1.9 to 1. The purchases included both single stocks and macro products – investments based on macroeconomic trends and events such as inflation, GDP, geopolitical issues, and fiscal policy. Single stocks accounted for 58% of total notional net buying, while macro products comprised 42%.

China Tops the Buyer List

Analysts confirmed that China has been the most net-bought market on Goldman Sachs’ prime brokerage platform so far in August. Current holdings of Chinese stocks exceed the MSCI All Country World Index (ACWI) by +4.9%, placing it in the 41st percentile compared to last year and the 16th percentile compared to the past five years.

Increased Exposure to Chinese Equities

Chinese stocks account for 5.8% of total gross exposure and 7.3% of net exposure within the prime brokerage platform, placing them in the 94th and 45th percentiles, respectively, compared to last year, and the 48th and 21st percentiles compared to the past five years.

Korean Investors Flock to Chinese Stocks

Trading in Chinese stocks listed on the mainland and in Hong Kong by Korean investors has also seen a significant increase. According to the latest data from the Korea Securities Depository, total transactions of Chinese stocks by Korean investors reached US$5.514 billion by the end of July, exceeding the full annual level of last year.

Focus on Tech Sectors

The top ten Chinese stocks in terms of net purchases by Korean investors are concentrated in leading companies in the fields of new energy vehicles, the internet, artificial intelligence, and semiconductors, among other technological areas.

Chinese Fund Performance Attracts Investors

According to the latest data released by a well-known Korean fund information service, the average return on Chinese equity funds issued locally in Korea from January to July this year was approximately 10.3%. The steady development of the Chinese economy has led to the outstanding returns of Chinese funds, attracting a large number of Korean investors to buy. In the Korean market, there was a net inflow of 402.1 billion South Korean won (approximately 208 million Chinese yuan) into Chinese equity funds in July alone.

Future Outlook

Liu Jinjin, chief China equity strategist at Goldman Sachs, noted that current valuations of the Chinese stock market are no longer cheap, and a correction is inevitable after the index hit new highs for the year. However, with the improvement in corporate earnings, there is still room for growth of 10% to 15% in the Chinese stock market in the next 12 months.

Raised Expectations for MSCI Index

In a report released on Monday, Liu Jinjin and other Goldman Sachs analysts raised the 12-month target point for the MSCI China Index from 85 points to 90 points, meaning that the index has room to rise by 11% from last Friday's closing price. Strategists said that positive factors include improving trade prospects and market liquidity support.