The Direxion Daily FTSE China Bull 3X Shares (YINN) soared 20.02% in pre-market trading on Monday, fueled by a renewed frenzy of buying interest from hedge funds betting on a swift recovery in China's equity market and economy.

Hedge funds have been piling into Chinese stocks at a record pace, making record net purchases of Asian equities in September led by China and Hong Kong, according to data from Goldman Sachs' prime brokerage desk. The buying spree comes as Beijing unleashes an extensive package of stimulus measures and policy support aimed at reviving the nation's struggling economy.

US-based Mount Lucas Management and Singapore's GAO Capital are among the heavyweight funds entering bullish positions on China-focused exchange-traded funds and large-cap stocks. Some, like Australia's Tribeca Investment Partners, are gaining exposure through proxies such as mining companies that benefit from China's economic growth.

"There are many people that hated the space or were sick of it after many false starts, and are now looking to buy," said David Aspell, chief investment officer at Pennsylvania-based Mount Lucas, who has also entered into call spreads for companies such as JD.com Inc. across some funds. "Stocks often bottom and rally hard before the economy does."

The bounceback is fueling optimism the three-year run of losses for Chinese shares is over. The market, which saw almost half its value wiped out from a 2021 high through to mid-September, is suddenly attracting many of the biggest names in the fund industry. Billionaire investor David Tepper is buying more of "everything" related to China, while the world's biggest money manager, BlackRock Inc., is now overweight Chinese shares.

However, some investors remain cautious about the sustainability of the rally. "It's very hard to see it being sustained until we have clarity out of the US," said Jun Bei Liu of Tribeca, referring to the potential impact of the upcoming US presidential election and possible changes to trade policies.