China Tops Hedge Funds’ Shopping Lists So Far This Year, Goldman Says
Global hedge funds have significantly increased their acquisition of Chinese stocks this year, with a notable surge in buying activities in the past week. This uptrend has largely been driven by the excitement surrounding homegrown artificial intelligence startup DeepSeek, according to a recent note from Goldman Sachs.
Chinese equities, both onshore and offshore, are currently the top market for net buying according to Goldman Sachs’ prime brokerage book. This data, which extends up until February 7, highlights a noticeable trend among global investors who are optimistic about the Chinese market.
The period between February 3 and 7 marked the highest level of purchases by hedge funds in over four months, reflecting growing investor interest and confidence.
Goldman Sachs’ prime brokerage desks, which provide lending to hedge funds and monitor their trading activities, have observed a clear shift in trading flows towards Chinese stocks.
One major factor contributing to this shift is DeepSeek’s breakthrough in producing a low-cost AI model. This development is seen as a pivotal point for re-evaluating Chinese assets among global investors, who are increasingly concerned about the high valuation of U.S. stocks.
A Hong Kong-based institutional sales director, catering to hedge fund clients, remarked that DeepSeek is changing the narrative that China is irrelevant in the AI space and losing the AI war.
Investors’ sentiment was further bolstered by Beijing’s policy-easing measures and relief that the recent 10% additional tariff on Chinese goods imposed by U.S. President Donald Trump was less severe than initially anticipated.
The MSCI China index has been on an upward trajectory for four consecutive weeks since mid-January, achieving over a 6% increase so far in February. This performance outstrips that of the world’s major markets, highlighting China’s appeal among investors.
Billionaire David Tepper’s hedge fund, Appaloosa LP, has notably increased its stakes in Chinese internet giants Alibaba Group and JD.Com during the fourth quarter. This strategic move has positioned both companies as some of the largest holdings within the hedge fund.
According to Goldman Sachs, 95% of the recent purchases by hedge funds were concentrated in single stocks, with consumer discretionary, information technology, industrials, and communication services leading the charge. Conversely, sectors like energy, utilities, and real estate saw a divestment from hedge funds during the same period.
The allocation of hedge funds to Chinese equities now constitutes 7.6% of Goldman Sachs’ total prime book exposure. This marks a significant increase, placing it in the 23rd percentile over the past five years, climbing from roughly the 10th percentile in January.
The ongoing developments in the Chinese market, coupled with advancements in AI and supportive government policies, suggest a continued interest from hedge funds. The focus on innovative sectors and more favorable bilateral trade conditions further accentuates China’s attractiveness as a key investment destination for global hedge funds.
As hedge funds are widely recognized for their ability to identify and capitalize on emerging market trends, their sustained interest in China’s dynamic and rapidly evolving market landscape underscores the potential opportunities and returns it offers. With China’s AI capabilities gaining acknowledgment and the perceived undervaluation of its stocks compared to their global counterparts, hedge fund managers are betting on China’s growth and innovation trajectory.
