By Summer Zhen
HONG KONG (Reuters) – Global hedge funds using a long-short equity strategy are becoming increasingly bullish on China, evidenced by a surge in their purchases of Hong Kong-listed shares, UBS Group said in a note.
Hong Kong’s stock markets, closely mirroring China’s troubled performance, have recovered since March as Beijing introduced economic stimulus measures. The stock rose more than 7% in April, marking its best monthly gain since January 2023 and outperforming most major markets.
Swiss bank UBS said in a note that market trends in Hong Kong had changed in the final days of April, unlike those since February when most inflows came from short covering. As stock prices rose in Hong Kong, fundamental long-short hedge funds continued to accumulate Chinese companies on the Hong Kong stock exchange, according to the UBS note tracking the May 1 hedge fund flow.
The bulk of the buying was focused on the technology and consumer discretionary sectors, UBS said, without disclosing the amount of cash flows.
Index heavyweights Meituan, Tencent and Haidilao rose 21%, 15% and 13% respectively last week.
Many funds entered 2024 bearish on China, while overweighting stocks in Japan and the United States.
However, sentiment towards the world’s second-largest economy has improved following market stabilization measures, a slight easing of US-China tensions and declines in both the US and Japanese markets.
Beijing is also showing signs of resolving a real estate crisis by easing policies and cleaning up its housing stock.
UBS last week upgraded Chinese and Hong Kong stocks to overweight, while Goldman Sachs said China is ready for a “rerating”, citing the latest government guidelines aimed at strengthening corporate governance and raising the quality of listed companies.
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Meanwhile, some major global long-only funds appear to be adding to their positions in China through Hong Kong stocks, according to a sales note from BofA Securities issued on Thursday.
Given recent volatility in markets such as Japan and the US, investors may look for low-cost diversification for their portfolio in Hong Kong or China, the sales note said.
Both the U.S. and U.S. benchmarks fell more than 4% each in the past month.
