According to Goldman Sachs and JPMorgan reports based on their clients' exposure, hedge funds are increasing their bets on Chinese equities as the country ends its strict zero-COVID policy.
As per Goldman Sachs' prime services weekly report, Chinese stocks are regaining popularity in global portfolios, with investors adding more than they shorted in eight of the last ten weeks. According to the US investment bank, Chinese equities saw the most cumulative four-week net buying since it began tracking the data.
China announced sweeping changes to its zero-COVID policy in early December, loosening rules aimed at containing the virus's spread. Some investors believe the new strategy will boost economic growth.
As of January 19, shares in Chinese companies accounted for 13.1% of the global net exposure of funds tracked by Goldman Sachs, up from 7.1% in late October but still falling short of a peak of 15.3% in July 2020.
According to Goldman Sachs' report, China was "by far the most net bought market on the prime book this week," based on client flows. "China, in our opinion, is quickly becoming a consensus long idea."
Since the beginning of 2023, the MSCI China index has risen 13.55 percent.
Analysts at JPMorgan, who see hedge funds adding Chinese stocks to their portfolios, warned in a report seen by sources that some of the positive momentum may wane in the near term, depending on new developments on China's reopening measures. "If the China reopening story picks up steam and we see greater participation from all types of investors, perhaps the rally can continue."
Hedge funds that bet on China's reopening and purchased undervalued stocks posted high returns late last year, according to Reuters earlier this month.