China has successfully regained the interest of global funds during a year of significant stock market gains. Investors are increasingly optimistic about the country’s potential, particularly in artificial intelligence and its resilience amid ongoing tensions with the United States. Major global fund managers, including Amundi, BNP Paribas Asset Management, Fidelity International, and Man Group, are projecting continued growth for Chinese stocks into 2026. JPMorgan Chase & Co has recently upgraded its rating of the Chinese market to overweight, and Gary Tan from Allspring Global Investments suggests the asset class is becoming essential for foreign investors.
The shift in investor sentiment reflects a growing recognition of China’s ability to deliver unique value through technological advancements. The MSCI China Index has seen a substantial increase of approximately 30 per cent this year. This performance surpasses the S&P 500 Index by the largest margin since 2017, resulting in an addition of $US2.4 trillion ($3.6 trillion) in market value. The majority of inflows have been driven by passive funds, raising hopes that the return of active money managers could further boost the rebound.
According to George Efstathopoulos, a portfolio manager at Fidelity International in Singapore, China has demonstrated resilience and investors are acknowledging its capacity for diversification and innovation. Foreign long-only funds invested around $US10 billion in shares in mainland China and Hong Kong through November of this year, according to data from Morgan Stanley. This represents a significant reversal from the $US17 billion outflow experienced in 2024.
However, the inflow was predominantly driven by passive investors tracking indexes, while active fund managers withdrew approximately $US15 billion. The shift in investment patterns highlights a complex dynamic within the Chinese market, with passive investment leading the current resurgence.
