Key Points
- Foreign investors poured $4.6 billion into Chinese stocks in September, the largest amount in nearly a year.
- The inflows were driven almost entirely by passive funds, which invested $5.2 billion.
- Total foreign passive inflows for the year have already more than doubled the amount for all of 2024.
- Active fund managers are increasing their bets on Capital Goods and Semiconductors.
Foreign investors poured $4.6 billion into Chinese stocks in September, the highest monthly inflow since last November, according to new data from Morgan Stanley. The surge was driven almost entirely by “passive” funds, which typically track a market index, suggesting a broad-based bet on a Chinese market recovery.
Passive funds pumped $5.2 billion into Chinese equities, while “active” funds, which stock-picking managers manage, saw a small outflow of $0.6 billion. The report notes that European passive funds were particularly active in September, catching up to a wave of U.S. investment that began in mid-July.
This marks a significant shift in sentiment. So far this year, foreign passive funds have invested a total of $18 billion in China, more than double the amount for all of 2024. At the same time, the outflows from active funds have slowed down considerably.
Examining the allocation of funds, active fund managers are demonstrating a clear preference for specific sectors. They significantly increased their holdings in Capital Goods and Semiconductors while pulling back from Insurance and Consumer Durables. They also became more bearish on Banks and Pharmaceuticals, but warmed up to Consumer Discretionary and Materials stocks.
Overall, the data suggest that while some active managers remain cautious, a significant amount of passive money is flowing back into China in a substantial way.
