Following a robust 14% return from its onshore China fund during the first half of 2025, Bridgewater Associates – the world's largest hedge fund – has amplified its bullish stance on Chinese equities. This heightened optimism emerges amid government stimulus measures countering trade tensions and signals a strategic pivot toward policy-backed opportunities.

In Q2 correspondence with investors, Bridgewater's China subsidiary disclosed shifting its Chinese equity positioning to "modestly increase" relative to its All Weather strategy benchmark. This recalibration stems from triple catalysts: sustained policy tailwinds, China's explosive AI investment wave, and persistently attractive valuations. The firm declined further commentary on the adjustment.

April's decisive government intervention stabilized capital markets after trade-war jitters triggered global equity declines, igniting rallies across Chinese stocks and bonds while boosting gold amid geopolitical uncertainty. Despite recent gains, Chinese markets (A-shares and H-shares) retain valuation discounts versus developed markets like the U.S., presenting compelling risk-reward dynamics according to Bridgewater's analysis. "We anticipate ongoing supportive policies will establish crucial downside protection for risk assets," the letter emphasized, signaling continuous allocation increases to diversified risk baskets.

Portfolio adjustments reveal nuanced sector rotations: Bridgewater elevated short-term bond exposure from "slightly increase" in Q1 to "modestly increase," while trimming commodity allocations to "slightly decrease" from "neutral." Its All Weather Plus strategy – emphasizing multi-asset diversification – continues outperforming domestic peers, fueling a 40% onshore AUM surge to over 55 billion yuan ($7.7 billion) in 2024. The strategy delivered 5.8% Q2 returns, compounding H1 gains to 13.6%, with active management contributing 2.3% in Q2 after Q1's 3% boost.

Market divergence remains stark: While CSI 300 stagnated, the AI investment frenzy propelled tech titans like Alibaba and Tencent, driving the Hang Seng Index beyond 20% gains and the Hang Seng Tech Index to 18% YTD growth (peaking above 30%). This eclipsed the S&P 500's performance and dwarfed CSI 300 returns.

Global sovereign capital appears poised to chase China's tech ascendancy. Invesco's Global Sovereign Asset Management Study reveals 59% of sovereign funds and central banks now classify China as high/medium allocation priority for 2025-2030 – a dramatic leap from 44% last year. Rod Ringrow, Head of Official Institutions at Invesco, notes intensifying FOMO (fear of missing out) sentiment: "Sovereigns view China's tech ecosystem as the next Silicon Valley and demand early exposure to globally competitive innovators." Optimism ignited by DeepSeek's breakthrough AI models and Alibaba's open-source initiatives now permeates robotics, biotech, advanced manufacturing, and EVs, with 78% of sovereigns predicting Chinese tech sectors will achieve global leadership.

DeepSeek's ultra-low-cost AI models and Alibaba's robust earnings have become unexpected bull catalysts, prompting global investors to reevaluate Chinese assets amid stretched U.S. tech valuations. Goldman Sachs analysis indicates China's top 10 private firms trade at 13.9x forward P/E – merely 22% premium to MSCI China versus the 50% premium for U.S. tech giants. The bank recently reaffirmed its bullish CSI 300 outlook, projecting 10% upside to 4,600 by year-end from Tuesday's 4,019 close.

Positioned among global core assets alongside S&P 500, Stoxx 600, and Nikkei 225, CSI 300 could deliver stronger H2 2025 performance according to Goldman. Key drivers include AI-driven momentum, anticipated policy easing, corporate earnings recovery, and macroeconomic stabilization. The bank maintains overweight ratings on both A-shares and offshore Chinese stocks, citing compelling valuations and potential capital inflows as sentiment improves.