Foreign Capital Takes the Lead! Morgan Stanley: Hedge Funds Increased Their Holdings of Chinese Stocks Last Week

In a recent report, Morgan Stanley pointed out that hedge funds, particularly those in the US, increased their bullish bets on Chinese stocks last week, hoping for progress in US-China trade negotiations.

In the week just passed, the MSCI China Index and the CSI 300 Index rose by 2.4% and 1.9%, respectively.

On Friday (May 9), Morgan Stanley noted in a report that after seeing signs of a possible trade deal between China and the US, US hedge funds bought shares traded on US stock exchanges and the A-share market, "re-engaging" with China.

The bank added that, in contrast, hedge funds reduced their positions in most Asian regions, including Thailand, Hong Kong, China, India, and Australia.

Over the weekend, China and the US held high-level economic and trade talks in Geneva, Switzerland. According to He Lifeng, the Chinese lead negotiator and Vice Premier of the State Council, on the evening of May 11, the talks were frank, in-depth, and constructive, with important consensus reached and substantive progress made. US Treasury Secretary Bessent also stated that substantive progress had been made in trade negotiations with China.

On Monday, China and the US issued a joint statement, announcing that both sides would revise their previous tariff measures. The US would retain a 10% tariff on imports from China, while suspending the remaining 24% tariffs for an initial 90-day period. China would also implement reciprocal tariff measures, retaining a 10% tariff on imports from the US and suspending the remaining 24% tariffs for the same initial 90-day period.

China exposure remains well below peak levels

Morgan Stanley added that hedge funds' exposure to China remains well below peak levels.

Michael Dyer, Head of Multi-Asset Long-Short Strategies at M&G Investments, said that his company had recently increased its exposure to China. He also mentioned the current low valuations of Chinese stocks and the low positions of global investors.

Following the announcement of the US-China Geneva negotiations, the Hang Seng Tech Index surged by 6%, and the Hang Seng Index rose by 3.3%.