By Summer Zhen

Hedge Funds Increase Bets on China Shares

HONG KONG (Reuters) – Global hedge funds have significantly increased their investments in China shares, with August poised to represent the highest monthly buying since February, according to a Morgan Stanley report.

The note indicates that hedge fund purchasing has been predominantly focused on onshore A-shares since early August, contrasting sharply with the influx of funds into Hong Kong’s tech-heavy stock market that occurred in February following DeepSeek’s AI advancements.

Sector Analysis

Consumer staples and industrials received the majority of inflows last week, as noted by Morgan Stanley on Tuesday.

In contrast, hedge funds have been offloading shares of internet giants listed in Hong Kong through reduced long positions and short-selling.

Despite a challenging first half of the year, onshore Chinese shares rallied during the third quarter, reaching a 10-year peak this month. The benchmark Shanghai Composite surged 12%, while the blue-chip CSI 300 increased by 9% so far this month.

Market Sentiment

Analysts attribute this surge to abundant liquidity and a wave of optimism surrounding U.S.-China trade discussions.

China-focused equity long-short funds have reported an average gain of 3% this month, with year-to-date increases reaching 13.5%, as estimated by Morgan Stanley.