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Global Investors Show Renewed Interest in China Amid Signs of Market Recovery

March 24, 2025
Globalfinserve

Hong Kong Symposium Highlights Improving Sentiment, But Caution Persists

Global investors are gradually warming up to China as sentiment toward the country’s financial markets shows signs of improvement. However, major long-only funds and institutional investors remain hesitant, seeking more concrete evidence of sustained recovery before making significant capital allocations.

This cautious optimism was the key takeaway from the Milken Institute Global Investors’ Symposium held in Hong Kong on March 24, 2025, where top fund managers, private equity firms, and hedge funds gathered to assess China’s market outlook.

✅ Key Highlights

  • Rising Interest in China: Foreign investors, including hedge funds and private equity firms, have increased visits to Hong Kong, signaling improving sentiment toward Chinese assets.
  • AI Firms Drive Optimism: The recent rally in Chinese stocks was sparked by rising investor confidence in AI companies, led by firms such as DeepSeek.
  • Valuation Gap with US Stocks: Experts highlight that Chinese companies remain undervalued compared to US firms, offering potential upside.
  • Caution from Long-Only Funds: Despite the recent rebound, large pension funds and long-only investors remain on the sidelines, seeking clearer signs of market stability.

China’s Market Rebound Sparks Optimism

In 2024, Chinese equities struggled with weak investor sentiment due to sluggish economic growth, a prolonged property sector crisis, and geopolitical tensions. However, 2025 has seen a moderate recovery, particularly in Hong Kong-listed stocks, thanks to:

✅ 1. Government Support Measures:

  • Beijing introduced stimulus packages aimed at propping up real estate, consumption, and private enterprises.
  • The government also eased restrictions on foreign capital inflows, boosting liquidity in the Hong Kong markets.

✅ 2. Artificial Intelligence (AI) Boom:

  • Investor enthusiasm for AI-driven companies such as DeepSeek has fueled a rally in Chinese tech stocks.
  • The Hang Seng Index in Hong Kong has climbed nearly 18% year-to-date, driven by gains in the tech and AI sectors.

✅ 3. Improved Market Sentiment:

  • Oliver Weisberg, CEO of Blue Pool Capital, highlighted increased visits from global hedge funds and PE firms to Hong Kong.
  • This trend is seen as a positive signal for the city’s financial recovery and potential inflows into Chinese markets.

Caution Persists Among Institutional Investors

Despite the recent rally, big pension funds and long-only investors remain cautious. According to Aaron Costello, Head of Asia at Cambridge Associates, most of the inflows into Hong Kong are still coming from mainland China, not from global investors.

  • Pension funds and institutional investors remain hesitant, concerned about:
    • Weak domestic demand in China.
    • Ongoing regulatory uncertainties in the tech and property sectors.
    • Geopolitical tensions, including the US-China trade rivalry.
  • Cambridge Associates noted that most active managers are still underweight on Chinese stocks, reflecting skepticism about the sustainability of the recent rebound.

Hong Kong’s Greater Bay Area as a Growth Engine

Financial experts at the symposium emphasized that Hong Kong’s future growth will be closely linked to the development of the Greater Bay Area (GBA). This region includes major Chinese cities such as Shenzhen and Guangzhou, creating a cross-border economic hub.

✅ Goodwin Gaw, chairman of Gaw Capital Partners, expressed confidence that Hong Kong will benefit from increased financial integration with the GBA, driving more inflows and opportunities for investors.
✅ The GBA initiative aims to enhance trade, business cooperation, and financial services, making Hong Kong a key financial gateway for foreign investors seeking exposure to China’s growth markets.

China’s Valuation Advantage: A Key Selling Point

Market participants at the symposium emphasized the valuation gap between Chinese and US stocks as a potential investment opportunity.

✅ Janet Perumal, head of Asia-Pacific at Wellington Management Singapore Pte, highlighted that:

  • Chinese companies remain significantly undervalued compared to their US counterparts.
  • Certain sectors, particularly technology and e-commerce, offer higher profit margins and shareholder returns.
  • This creates an attractive buying opportunity for long-term investors, especially if China’s economy stabilizes.

Challenges Facing Chinese Markets

While the improving sentiment is encouraging, China’s financial markets still face several headwinds:

  1. Property Sector Woes:
    • Despite government measures, China’s real estate sector remains fragile.
    • Debt-laden developers like Kaisa Group and Evergrande continue to struggle with liquidity issues.
  2. Geopolitical Risks:
    • Rising tensions between China and the US, particularly around tech regulations and trade policies, could dampen investor confidence.
    • Donald Trump’s “America First” strategy, if implemented, may add further uncertainty to global trade relations.
  3. Lack of Institutional Conviction:
    • Long-only funds and large institutional investors have not yet returned in significant volumes.
    • Sustained inflows will require more convincing policy reforms and stable economic growth.

What’s Next for Chinese Markets?

As Chinese equities rebound, investors are weighing their next moves. The market’s future trajectory will depend on:

  1. ✅ Policy Support:
    • More targeted stimulus measures from Beijing could boost investor confidence.
    • Infrastructure investments and fiscal incentives could further drive growth.
  2. ✅ Corporate Earnings and Fundamentals:
    • Investors will closely monitor Q1 2025 earnings for Chinese companies to gauge recovery strength.
    • Improved profitability in sectors like technology and e-commerce could drive further inflows.
  3. ✅ US-China Trade Relations:
    • Any escalation of trade tensions could derail the recovery.
    • Investors will be watching for diplomatic developments closely.

✅ Key Takeaways for Investors

  1. Improving Sentiment, But Caution Remains:
    • While hedge funds and PE firms are showing renewed interest, big pension funds and long-only investors remain cautious.
    • More evidence of sustainable growth is needed to attract larger capital inflows.
  2. Hong Kong’s Rising Role:
    • Hong Kong’s integration with the Greater Bay Area is expected to be a catalyst for growth.
    • This could make Hong Kong a hub for international capital targeting Chinese markets.
  3. Valuation Opportunities:
    • Chinese equities remain undervalued compared to US stocks, offering potential upside.
    • AI and technology sectors are seen as key growth drivers.

✅ Conclusion: Cautious Optimism with China’s Recovery

While global investors are gradually showing more interest in Chinese markets, widespread conviction from large funds is still lacking. The recent rally, driven by AI enthusiasm and government support, offers hope. However, geopolitical risks and concerns about China’s economic stability continue to weigh on investor sentiment.

For long-term investors, China’s undervalued stocks present a potential buying opportunity, but caution remains key.

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