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## Global hedge funds bullish on China

By Summer Zhen

### Increasing interest in Hong Kong-listed shares

HONG KONG (Reuters) – Global hedge funds that employ an equities long-short strategy are showing a growing bullish sentiment towards China, as indicated by a significant uptick in their purchases of Hong Kong-listed shares, according to a note from UBS Group.

### Positive market trends in Hong Kong

Hong Kong’s stock markets, which closely reflect China’s performance, have seen a resurgence since March following the implementation of economic support measures by Beijing. The Hang Seng Index recorded a more than 7% increase in April, marking its strongest monthly gain since January 2023 and surpassing most major markets.

### Shift in market dynamics

UBS highlighted a change in Hong Kong market trends towards the end of April, contrasting with the trend observed since February when the majority of inflows were driven by short covering. Amid the uptrend in Hong Kong stocks, fundamental long-short hedge funds continued to acquire shares of Hong Kong-listed Chinese companies, according to the UBS note tracking hedge fund flow dated May 1.

### Focus on specific sectors

The bulk of the purchasing activity targeted the technology and consumer discretionary sectors, with UBS noting significant interest without divulging specific flow amounts.

### Noteworthy stock performance

Index heavyweights like Meituan, Tencent, and Haidilao saw substantial gains of 21%, 15%, and 13%, respectively, in the previous week.

### Improved sentiment towards China

While many funds entered 2024 with a bearish outlook on China and favored investments in Japan and the United States, sentiment towards the Chinese market has improved in light of market stabilization measures, a slight relaxation in U.S.-China tensions, and downturns in U.S. and Japanese markets.

### Positive outlook for China

UBS recently upgraded China and Hong Kong stocks to overweight, while Goldman Sachs indicated a potential “re-rating” for China, citing governmental efforts to enhance corporate governance and elevate the quality of listed companies.

### Continued interest from global funds

Moreover, some large global long-only funds appear to be increasing their exposure to China through investments in Hong Kong stocks, as suggested in a sales note from BofA Securities released on Thursday.

### Seeking portfolio diversification

Given the recent market volatility in countries like Japan and the U.S., investors may be considering cost-effective diversification options for their portfolios in Hong Kong or China, according to the sales note.

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