After years of cutting back, big global stock pickers have largely stopped selling China. Bank of America reviewed nearly 2,800 portfolios and found that active long-only funds, on average, moved to a neutral weight on China starting in June, wrapping up a roughly four-year spell of being underweight. The dataset covers 2,767 funds worldwide that together hold $562 billion in Chinese equities, strategist Nigel Tupper noted.
It is not a flip to full-on optimism, but it does suggest the steady selling that has capped rallies is fading. Managers are being tempted by cheaper valuations and a better profit outlook in growth areas like artificial intelligence.
"Selling pressure is nearing a floor, shifting investor focus from positioning to earnings delivery," said Gary Tan, who manages portfolios at Allspring Global Investments. He noted that his team is picking up Chinese shares on a selective basis. "China does not need global investors to turn outright bullish for the market backdrop to improve; it may simply need them to stop cutting exposure."
ETF money flows are nudging in the same direction. Products focused on China and Hong Kong saw about $19 million of inflows in August following roughly $1.94 billion of redemptions in July, per Bloomberg Intelligence. At the same time, outflows are picking up from emerging-market funds that leave China out.
"China's systematic ETF underweight is likely approaching a floor after the sharpest allocation reduction among major emerging markets," said BI analyst Rebecca Sin. "The forces creating China's underweight have started to lose momentum."
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Valuations help the case. The MSCI China Index trades around 10.2x forecast earnings for the next year, below its 10-year average of 11.7x.
The rebound is not uniform. The CSI 300 is down about 11% this quarter, and investors are staying picky. Profits are getting better in segments connected to Beijing's technology drive: Shanghai-listed companies reported a 17.6% increase in first-half net income, helped by tech hardware and other new-economy names, even as property and consumer sectors trailed, according to Shanghai Securities News.
"You buy the future of China," said Herald van der Linde, who heads the Asia Pacific equities strategy team at HSBC Holdings Plc, pointing to hardware technology and biopharma as favored areas. Consumer-facing businesses and real estate are "the past of China."
The center of gravity has shifted from nonstop selling to whether companies can deliver earnings, especially in AI-adjacent and hardware names. With valuations sitting below long-run averages and fund outflows slowing, the market backdrop looks less hostile. But the split is real: tech and biopharma are drawing interest, while consumer and property lag, and the CSI 300's roughly 11% quarterly slide is a reminder that selectivity still matters.
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