As surging stock markets and technological breakthroughs attract global capital back, international asset management institutions are reassessing the investment value of the Chinese market. Goldman Sachs recently noted in a report that global hedge fund activity in A-shares reached multi-year highs last month, forming a stark contrast to 2021 when some clients declared the Chinese market "uninvestable." Pacific Investment Management Company pointed out that investors are now more concerned about missing opportunities rather than dwelling on risks.

Official data shows foreign capital is flowing comprehensively into various Chinese asset classes, a synchronized growth trend that has only occurred three times in the past decade. Various indicators suggest that the Chinese market, previously shunned by global investors due to prolonged regulatory crackdowns and deteriorating real estate crisis, is now experiencing a turnaround.

The $2.7 trillion rebound in A-shares this year demonstrates undeniable attractiveness, and global funds remain underweight in Chinese assets, indicating broad room for future allocation increases. Fidelity International portfolio manager Joseph Zhang is currently continuously increasing holdings in Chinese assets, stating: "Global investor interest in Chinese assets is clearly warming. What's special about this year is that the Chinese asset revaluation is no longer policy-driven frenzied trading, but driven by fundamental improvements, and investor confidence is expected to strengthen further."

This forms a huge contrast with the pessimistic period after the market peaked in 2021, when some asset management companies believed investing in China was not worth the effort. Now, supported by exceptional achievements in artificial intelligence (AI) and economic resilience demonstrated by withstanding US sanctions pressure, market narratives have shifted toward confidence rebuilding.

Expanding foreign capital inflows not only help boost the RMB exchange rate but will also assist in enhancing the RMB's position in the global financial system. Timing factors are also favorable for China. The Trump administration's confrontational trade policies, the Federal Reserve's rate-cutting cycle, and America's continuously expanding fiscal deficit have prompted investors to seek alternatives to dollar assets, thereby re-examining the massive Chinese market.

Invesco Investment Solutions multi-asset portfolio manager Chang Hwan Sung stated: "As risk appetite continues to improve and the dollar weakens, markets like China with attractive valuations and low global fund allocation ratios will benefit." He revealed that funds under his management have been increasing Chinese equity allocations.

In the first half of this year, foreign capital simultaneously increased holdings in Chinese domestic stocks, bonds, loans, and deposits, the first time since 2021. The latest data from the People's Bank of China shows that as of June, foreign capital net inflows have exceeded 60% of the total for all of 2024. This momentum likely continues.

State Administration of Foreign Exchange Deputy Administrator Li Bin stated at a press conference earlier this month that in August, "foreign capital had net purchases of domestic stocks and bonds overall."

**Technology Breakthroughs Reshape Investment Logic**

The core support for changing market perceptions lies in the rise of the technology sector. Industry giants like Alibaba (09988) have launched self-developed AI models, while chip companies like Cambricon Technologies Corporation Limited have continuously achieved technological breakthroughs.

Amundi UK Emerging Markets Head Yerlan Syzdykov pointed out: "Global investors will increase Chinese asset allocations over the coming years. The 'fear of missing out' (FOMO) triggered by strong performance in Chinese markets, and attractive valuation opportunities in areas like clean technology and AI, will be major driving factors."

Data shows that in the week of September 19, among US-listed ETFs focused on emerging markets, products tracking Hong Kong and Chinese stocks and bonds attracted the largest capital inflows. Morgan Stanley noted that as of end-August, foreign long-term fund inflows into Chinese markets reached $1 billion, reversing last year's $17 billion outflow.

A report released by the bank earlier this month shows that despite improvements, global funds remain underweight Chinese assets by 1.3 percentage points, while Asian funds excluding Japan have turned overweight. Strategist Laura Wang stated that during her US roadshow, over 90% of clients she contacted clearly expressed intentions to increase Chinese asset exposure, the highest level of attention since early 2021.

Although China has stopped publishing northbound capital data (the main channel data for foreign investment in A-shares through Hong Kong), Goldman Sachs strategist Kinger Lau noted that available data shows "foreign participation in Chinese equity markets (especially A-shares) has risen to cyclical highs." He revealed that August global hedge fund inflows reached multi-year peaks.

The CSI 300 Index, serving as the A-share benchmark, has gained 16% this quarter, reaching three-year highs; the tech-heavy ChiNext Index has risen nearly 50% over the same period, ranking among global leaders. However, both indices remain below their 2021 peaks.

Nevertheless, some institutions remain cautious about returning to Chinese markets. Multi-sector regulatory crackdowns launched in 2021 (covering technology, education, and other sectors) caused stock market crashes, spawning the "uninvestable" narrative at the time. Additionally, regulators' intention to suppress excessive market enthusiasm means parabolic rallies may face regulatory scrutiny. Geopolitical tensions also lead some funds to continue avoiding Chinese assets for political considerations.

**Benefits Transmit to Bond Markets**

Despite this, rising foreign interest in various Chinese assets conveys a core signal: the Chinese government is committed to stabilizing the economy, while US-China trade wars will only force further improvements in China's industrial strength.

This year, RMB bonds issued by Chinese tech companies in Hong Kong reached record levels. HSBC Greater China Debt Capital Markets Head Eugene Ng stated that "substantial growth" in the dim sum bond market benefits from continuous expansion of the global investor base. He revealed that in Tencent's (00700) bond issuance earlier this month, Middle Eastern investors participated throughout the subscription process, and European quality funds also entered; Alibaba's convertible bond issuance was oversubscribed, with subscribers including various investors such as long-term funds and hedge funds.

Although rising risk appetite pressures government bonds, market expectations for People's Bank of China easing policies and low inflation environments are re-attracting buyers. Pacific Investment Management Company Managing Director and Asia Portfolio Manager Stephen Chang stated that communication focus with clients has shifted from "how to hedge risks" to "what opportunities exist in Chinese markets."

Stephen Chang co-manages a $572 million fund that has outperformed 98% of similar products this year. He revealed recent increases in Chinese government bond holdings and possible further additions. Official data shows foreign capital reduced Chinese government bond holdings in August, but selling volumes were only one-fifth of July levels.

People's Bank of China Deputy Governor Zou Lan stated at a Hong Kong forum last week: "RMB bond real yields remain at relatively high levels, providing quality investment channels for global investors."

These factors collectively support RMB strengthening, with the RMB-USD exchange rate reaching near 7.1 this month, hitting highs since last November. UBS China Global Markets Head Thomas Fang stated: "China is by no means uninvestable. The huge gap between China's weight in the global economy and global investors' single-digit allocation ratios represents a major long-term opportunity in itself."